Diageo: Does Brexit Make This Multinational Spirits Company Attractive?

Jun. 24, 2016 1:25 PM ETDiageo plc (DEO)16 Comments
Vishesh Raisinghani profile picture
Vishesh Raisinghani


  • Diageo is a massive company that has struggled with organic growth and is looking to buy it’s growth from abroad.
  • This means a bigger proportion of its revenues and profits come from outside Britain.
  • Debt is high, but most of it is borrowed in GBP. As the pound falls, bottom line should be impacted positively.
  • High profits and dividends point to an attractive company. Near term volatility should put it in BUY zone.

Brexit results have come in just a few minutes back and there's probably going to be a lot of chatter around it for the coming weeks. I thought it would be a good time to take a look at the numbers and figure out if Diageo (NYSE:NYSE:DEO), Britain's biggest spirit company, is worth buying as the drama unfolds.

We'll take a look at the current state of the company, discuss its new CEO, try to figure out the impact on its bottom line from a weaker sterling and, finally, run a DCF to see if we can pin down an intrinsic value.

Too Big To Grow (Organically)

A quick Google search is likely to show you just how massive Diageo is. If you drink, it's pretty likely they own a brand you recognize. Their portfolio includes Guinness, Ciroc, Smirnoff, Baileys, Captain Morgan and, of course, Johnny Walker. The company employs more than 33,000 people and sells products in 180 countries.

Under former-CEO Peter Walsh, the beverage company started building a consumer drinks empire. It succeeded, and is now the world's biggest spirit company by volume. That begs the question - is there room to grow?

The latest reports by the company show that its preferred metrics of growth are flattening. Organic growth is flat at 0% since 2014, while organic operating margins have improved by double-digit basis points every year. This means efficiency is improving, but sales are flat if you don't consider acquisitions.

Which is precisely why the management has been so focused on acquisitions over the past few years. The group is now so massive and owns so many well-known brands, that there's only one way to grow volumes and drive profits - buy emerging market brands.

One of the biggest recent acquisitions has been United Spirits (NYSEARCA:

This article was written by

Vishesh Raisinghani profile picture
Founder at Sharpe Ascension Inc. - a content marketing agency for financial and technology firms.Researcher, Content Creator, Financial Writer, Consultant., PizzatarianCollaborating with Seeking Alpha contributor Growth At A Good PriceFind me on Twitter @Visheshrr or send me an email if you'd like to work together.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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