Diageo PLC (DEO)

They have been struggling in China. Cash flows have dramatically declined. Dividend growth has averaged about 9%, which is okay, but there are better companies in the beverage industry.

Alcoholic beverage company. 80% of business is in spirits. They also have a beer business with one of the world’s leading brands. DEO-N has not been a good performer over the last couple of years. It is a good industry. It is time to take a good hard look at these businesses. They continue to take market share. He thinks they will sell the beer business and the stock will jump.

Diageo (DEO-N) or Unilever (UL-N) foreign income focused investor? Neither of these is cheap today. You are paying a high price for very stable earnings. The difference between the 2 companies is that this one has been basically a no growth story in terms of earnings and revenues. Unilever is well positioned globally, especially in emerging markets. Because of this, it will give you earnings growth along with better dividend growth. If he had to pick one or the other, it would definitely be Unilever.

Stock vs. Stock. DEO-N vs. UL-N. He owned DEO-N and now owns UL-N. There is really nothing left for DEO to buy of any size. It has been a growth by acquisition story. The market will re-price it back to a dividend story.

Likes it. The prospects are improving. The US is a strong market. A well run company. If Asia turns, then we should see some pickup in demand in China. At a reasonable multiple.

They are a global company, around 21 times earnings and a great dividend. They had issues where they spent too much on marketing. The volume of spirits does not move up. People move from clear to premium spirits. He thinks they will do more bolt-on acquisitions in local markets. It is a great growth business that is consolidating. It is a well managed company and will continue to do well.

A very good company, 21 times earnings and 2.8% dividend. The drinks business is a great cash flow business. DEO-N is 60% owned by the top 5-6 guys. They compete with a lot of local producers. Their history has been to do deals and they will do this with local guys. Liquor consumption is rather stable, but moving from clear to dark liquor. They are well positioned with products in both ranges. As people get wealthier, they drink a lot more alcohol. This is far more prevalent in the developing world. The one risk is how they estimate their marketing expenses.

An expensive stock for a company with almost zero earnings growth and flat lining revenues at best. Have phenomenal brands in a very mature industry. They have been a great and smart acquirer of brands, but at 19X earnings with almost no growth, it is hard to find value here. The dividend is secure and there is room for dividend increases.

Growth by acquisition story. Now he asks, what is left to buy. It will become more of an organic story going forward. Once the market has digested that and once they pay down debt, there may be room to raise the dividend.

Trading around 16 or 17 times and pays a decent yield. However, they have been forecasting some reasonable organic growth and some good margin growth. That has really not occurred over the last little while, which has hurt the stock. Have estimated about 200 million€, which to him indicates a need to do a lot more. Have some great brands and thinks they can have some decent top line growth, especially with good global economic growth in the next while. Expects the stock can go down a little bit from here.

This was a growth by acquisition story, but late last year he sold it. There is not much left for them to buy. It will now turn into an organic growth story. High quality company, but probably very expensive and it will take a couple of years for the market to realize the growth is slowing. That will be the time to get in.

What is good is that there has been a consolidation on the drink side, but there is still room for more consolidation. Have some great brands. What has hurt them in the last little while is that they have gone through a period were margins had been compressed because they had to spend a little bit extra on marketing, especially in Asia. The fruits of this have not come through as yet.

Sold it last year because it was growth by acquisition and there was not much left to buy.

A very strong generator of cash flow and, as a result, it gets a premier multiple associated with it. This is one that you would definitely buy on the dips and you would buy it for the ability to keep growing free cash flow in lockstep or excess of the cost of inflation.

Underperformed the market over the last 12 months because there is not a lot of top line growth. Fine company, large, conservative. You won’t lose your shirt but he prefers business that benefit from a recovering economy.