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For a few years, Diageo (LSE:DGE) shares had been seen as a little bit of a portfolio ‘no-brainer’. The form of FTSE 100 inventory you would sleep straightforward at evening proudly owning, understanding that each few seconds somebody, someplace on the earth, was slurping one of many agency’s drinks.
That may very well be a Guinness in a village pub, a G&T (with Tanqueray or Gordon’s) in a New York bar, or a Baileys at Christmas. And even baijiu at a proper banquet in China, the place Diageo owns roughly 63% of distiller Sichuan Swellfun.
The corporate’s progress technique was primarily based on premiumisation. This was summed up by its mantra: “Drink better, not more.” Ingesting higher, after all, concerned paying a premium for Diageo’s manufacturers, thereby fattening revenue margins.
Nevertheless, since revellers rang within the 2022 New 12 months, the inventory has shockingly collapsed by 55%. A bitter cocktail of things have damage gross sales, starting from inflation and better rates of interest to Gen Z wellness traits and probably even GLP-1 weight-loss medication.
Money-strapped drinkers started buying and selling right down to the tough stuff in 2023, particularly in Latin America. Its premiumisation technique on the ropes, Diageo lastly scrapped its medium-term annual gross sales progress goal of 5%-7% in 2025.
The place are we now?
Diageo doesn’t report H1 2026 earnings till 25 February, however November’s Q1 replace was sobering. Administration mentioned it expects natural internet gross sales progress to be flat and even barely down this 12 months on account of weak point in China and the US.
However whisper it quietly, there was a little bit of a restoration brewing, with the share value up 14.7% in 2026.
Granted, it’s barely detectable on the graph above and is nowhere close to champagne-popping territory. But it’s sufficient to have turned £15,000 invested firstly of the 12 months into roughly £17,200.
So, what’s occurring? Properly, it’s certainly linked to new CEO Dave Lewis, who began in January. Dubbed ‘Drastic Dave’, he’s generally known as a turnaround specialist, having steadied scandal-hit Tesco within the mid-2010s.
Moreover, Diageo has a 34% stake in Moët Hennessy, which analysts at RBS reckon may very well be value as a lot as €4bn. Considerably randomly, there’s additionally an Indian cricket group, probably value $2bn, in addition to underperforming spirits labels that may very well be flogged.
These potential disposals may considerably enhance the corporate’s stretched stability sheet. And it’s already on observe to ship round $625m in value financial savings over the following three years.
Slimmed-down Diageo
After all, these challenges I discussed above — client pressures, GLP-1s, alcohol moderation, and US weak point — are nonetheless current. Drastic Dave can’t wave a magic wand and make them disappear.
Nevertheless, he has huge model and advertising expertise from his time at Unilever. And a slimmed-down Diageo centred round progress manufacturers like Guinness, Johnnie Walker and Smirnoff Ice may nonetheless reward shareholders handsomely within the years forward.
CFO Nik Jhangiani just lately mentioned Diageo hasn’t even “scratched the surface in terms of what we can do with Guinness” worldwide.
For buyers in search of a turnaround inventory, I feel this one is effectively value contemplating whereas it’s down 55%.
