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The invention of Ozempic has been a catastrophe for the Diageo (LSE: DGE) share worth. The burden loss drug, additionally recognized by its generic title semaglutide or bought as Wegovy, has the peculiar facet impact of inflicting customers to drink much less. Causes given embrace worse hangovers and never getting the identical ‘buzz’.
As a Diageo shareholder, I’m watching the state of affairs with the Guinness, Smirnoff, and Tanqueray producer with curiosity. With 27% of British adults being overweight and 64% being chubby or overweight, use of those anti-obesity therapies would possibly grow to be an increasing number of widespread.
Does that imply we’re inching inexorably towards a future overflowing with skinny teetotallers and with a cratered Diageo share worth? Or have the rumours of the demise of alcohol been enormously exaggerated? Let’s discover.
Issues
Whereas Ozempic and its counterparts burst onto the scene in 2017, the medication solely gained widespread adoption a number of years after. The Diageo share worth maps roughly neatly onto their proliferation. Let’s study the pre-Ozempic excessive of Diageo shares to see how dangerous the autumn is.
The shares reached an all-time excessive of £40.36 on New 12 months’s Eve of 2021, a time when weight reduction medication have been nonetheless the protect of dodgy adverts on shady web sites. The shares slowly fell to £18.93 on the day that I write this, a staggering fall of 53%.
Whereas different points have plagued the alcohol beverage multinational, notably falling consumption by Gen Z and provide chain points in Latin America, a £10,000 stake purchased on the prime would have fallen to £4,690 at the moment. So as to add insult to harm, the FTSE 100 has been hovering over the identical time interval. A £10,000 stake in a Footsie index fund would have swelled to £12,634. I excluded dividends from these calculations, by the best way.
Holding on
If there’s a lesson to be realized right here, it’s that typically you need to chalk it as much as the sport. In different phrases, these items occur in investing. Issues come out of the blue and make a as soon as very engaging inventory look fairly a bit much less engaging.
May I’ve predicted the decline in alcohol consumption among the many newest batch of younger adults? Most likely not. And I’m not within the behavior of constructing funding choices based mostly on the invention of revolutionary new medication both. I purchased Diageo as a result of it regarded like an awesome inventory.
On fundamentals, it nonetheless appears to be like like an awesome inventory in lots of respects. Guinness is without doubt one of the hottest beers going. And its zero alcohol model is equally cherished among the many no-drinking and ‘sober curious’ crowds. A ahead price-to-earnings ratio of simply 14 appears to be like very affordable too. It’s for these causes that I plan to carry onto my shares despite my despair on the worsening outlook.
