Stock of the week: Diageo
Global drinks group, Diageo, is set to acquire Hollywood star George Clooney’s tequila brand Casamigos. Diageo will initially pay $700m, and – depending on the firm’s performance over the next 10 year – there is the potential for a further $300m. This sale will add to the group’s enviable portfolio of world renowned alcohol brands, including Johnnie Walker, Guinness, Smirnoff and Baileys.
The company has strong geographical diversification with exposure to large, developed markets such as the US, as well as fast-growing emerging markets in Asia and Africa. It now has full control of USL in India, its most important emerging market, where prospects are improving. Investors should note that a large proportion of sales come from the US and so the group is benefiting from the weakness in sterling as well as an increased demand for spirits in the region.
We continue to recommend a ‘buy’ on Diageo because of the strength of its brands, resilient sales in the US market, excellent long-term prospects for emerging markets, continued improvements in cost-cutting and a relatively good dividend yield. Interested investors should note that given the recent rise in its share price, we would suggest drip feeding into the stock.