September 6, 2018

DGE:GBR – Market expectations are for Uniform ROA expansion, but management has concerns about customer growth and their portfolio


  • Diageo plc (DGE:GBR)currently trades at historical highs relative to UAFRS-based (Uniform) Earnings, with a 25.9x Uniform P/E, implying bullish expectations for the firm. However, management has concerns about investments in their portfolio and their ability to attract new customers
  • Specifically, management may lack confidence in their ability to sustain strong net sales growth in baijiu through increased investments in the segment, and may be concerned about investments in their Tanqueray line. They may also be concerned about their ability to continue delivering strong growth in their reserve portfolio, and to increase organizational savings. Furthermore, they may lack confidence in their ability to attract new customers to Bailey’s with new innovations, and they may be concerned about their new Guinness Pure Brew. Moreover, they may be concerned about continued softness in Mexico due to price increases, as well as softness in the other scotch segment compared to last year. In addition, they may be concerned about the performance of their new Johnnie Walker Blue Label Ghost, and may lack confidence in their ability to continue to expand brand awareness through educational and mentoring events. Finally, they may be concerned about the financial implications of increased investment in maturing stock and CapEx, as well as continued increases in their effective interest rate
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