Diageo (DGE)

[Dod101]

Diageo to acquire Don Papa Rum.

Today, Diageo announces it has reached an agreement to acquire Don Papa Rum, a super-premium, dark rum from the Philippines. The upfront consideration is €260 million with a further potential consideration of up to €177.5 million through to 2028 subject to performance, reflecting the brand's current growth potential.

The super-premium plus segment of the rum category is in the early stages of premiumisation, with a compound annual growth rate (CAGR) of 18% in Europe and 27% in the US between 2016-2021. Through the same period, Don Papa Rum consistently outperformed the market in Europe, delivering a 29% CAGR*.

Launched in 2012 by entrepreneur Stephen Carroll,together with Andrew John Garcia, Don Papa Rum is currently available in 30 countries, with France, Germany and Italy being its largest markets.Don Papa Rum has a unique flavour profile, highly distinctive packaging and an authentic brand story rooted in the beautiful island of Negros Occidental - known locally as'Sugarlandia'. The rum is distilled and aged on the island in American oak barrels. The combination of the local sugar cane and the oak barrel ageing in a hot tropical climate provides the foundation for Don PapaRum'slong, rich-textured finish, which carries flavours of vanilla, honey, and candied fruits.

https://www.investegate.co.uk/diageo-pl ... 00038944M/

Ian (I hold)

It sounds horrible but Diageo has plenty of experience in this sort of thing.

Dod

[Arborbridge]

Diageo to acquire Don Papa Rum.

Today, Diageo announces it has reached an agreement to acquire Don Papa Rum, a super-premium, dark rum from the Philippines. The upfront consideration is €260 million with a further potential consideration of up to €177.5 million through to 2028 subject to performance, reflecting the brand's current growth potential.

The super-premium plus segment of the rum category is in the early stages of premiumisation, with a compound annual growth rate (CAGR) of 18% in Europe and 27% in the US between 2016-2021. Through the same period, Don Papa Rum consistently outperformed the market in Europe, delivering a 29% CAGR*.

Launched in 2012 by entrepreneur Stephen Carroll,together with Andrew John Garcia, Don Papa Rum is currently available in 30 countries, with France, Germany and Italy being its largest markets.Don Papa Rum has a unique flavour profile, highly distinctive packaging and an authentic brand story rooted in the beautiful island of Negros Occidental - known locally as'Sugarlandia'. The rum is distilled and aged on the island in American oak barrels. The combination of the local sugar cane and the oak barrel ageing in a hot tropical climate provides the foundation for Don PapaRum'slong, rich-textured finish, which carries flavours of vanilla, honey, and candied fruits.

https://www.investegate.co.uk/diageo-pl ... 00038944M/

Ian (I hold)

It sounds horrible but Diageo has plenty of experience in this sort of thing.

Dod

The super-premium plus segment of the rum category is in the early stages of premiumisation

Only in marketing land do people write like that!

[Dod101]

Diageo to acquire Don Papa Rum.

Today, Diageo announces it has reached an agreement to acquire Don Papa Rum, a super-premium, dark rum from the Philippines. The upfront consideration is €260 million with a further potential consideration of up to €177.5 million through to 2028 subject to performance, reflecting the brand's current growth potential.

The super-premium plus segment of the rum category is in the early stages of premiumisation, with a compound annual growth rate (CAGR) of 18% in Europe and 27% in the US between 2016-2021. Through the same period, Don Papa Rum consistently outperformed the market in Europe, delivering a 29% CAGR*.

Launched in 2012 by entrepreneur Stephen Carroll,together with Andrew John Garcia, Don Papa Rum is currently available in 30 countries, with France, Germany and Italy being its largest markets.Don Papa Rum has a unique flavour profile, highly distinctive packaging and an authentic brand story rooted in the beautiful island of Negros Occidental - known locally as'Sugarlandia'. The rum is distilled and aged on the island in American oak barrels. The combination of the local sugar cane and the oak barrel ageing in a hot tropical climate provides the foundation for Don PapaRum'slong, rich-textured finish, which carries flavours of vanilla, honey, and candied fruits.

https://www.investegate.co.uk/diageo-pl ... 00038944M/

Ian (I hold)

It sounds horrible but Diageo has plenty of experience in this sort of thing.

Dod

The super-premium plus segment of the rum category is in the early stages of premiumisation

Only in marketing land do people write like that!

Yes. That sounds horrible too.

Dod

[monabri]

Sounds like a Dragon's Den story.

[idpickering]

Sounds like a Dragon's Den story.

Maybe so, but I till wish I'd bought a lot more DGE years ago. I've held the share for years, and have no intention of selling my DGE shares any time soon, if ever?

Ian.

[Arborbridge]

Sounds like a Dragon's Den story.

Maybe so, but I till wish I'd bought a lot more DGE years ago. I've held the share for years, and have no intention of selling my DGE shares any time soon, if ever?

Ian.

One of the few shares I've trimmed more than once for becoming too large a share.

[idpickering]

One of the few shares I've trimmed more than once for becoming too large a share.

Thanks for your input Arb. I've held DGE since 17 Aug 2009, topped up twice since, with an average purchase price of 1854p ps. As of now they make up just under 2% in capital value terms of my, now 29 share HYP. But that's not for this board of course.

Ian.

[KnightOfSpring]

Doesn't seem surprising the acquisition. Drizly (US drinks online business) had predicted a resurgence in rum in 2023. Diageo will have it's own market data, which I suspect is second to none, which should confirm this. Diageo has also steadily been making super-premium acquisitions across all most of it's categories for many years. One of the early ones Casamigos (tequila) looked eye-wateringly expensive, but with hindsight looks very good value given the stellar growth it has had. Don Papa is not that big an acquisition either for a company as big as Diageo.

Still all eyes on results next Thursday. It is my second biggest holding but I would consider buying more. Always a nagging thought that you could look an idiot buying a share exposed to high priced products with a recession just round the corner (or even already here). Signs that luxury spending is holding up well but would like to hear Diageo's up to date thoughts. I guess they probably would have not done the Don Papa acquisition if they felt the roof was falling in.

Regarding their results, one bug bear I have with them is that they have made the recent results calls analyst only (and announced the details with the results announcement). I understand they don't want all and sundry asking questions on a conference call, but you would have thought a listen only mode should be possible. A year ago I was given a passcode from the IR person (impressive she responded on the morning of results), but didn't get a reply last time. If it reverts to a webcast it should be accessible anyway but just was wondering if anyone knew of any other FTSE 100 company that restricted access to the results meeting?

[idpickering]

Heads up! The DGE CEO is being interviewed on Bloomberg TV in a few minutes.

Ian.

[idpickering]

2023 Interim Results, half year ended 31 December 2022.

Delivered strong net sales growth, with growth across all regions.

Reported net sales of £9.4 billion, increased 18.4%, primarily reflecting strong organic net sales growth as well as favourable impacts from foreign exchange, mainly due to the strengthening of the US dollar.
Organic net sales grew 9.4%, with growth in all regions. Price/mix of 7.6 percentage points reflects a high single-digit price contribution to net sales growth, premiumisation and organic volume growth of 1.8%.
Growth was enabled by our diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation.

https://www.diageo.com/en/investors/res ... sentations

And this too.

Dividend
The group aims to increase the dividend each year. The decision in respect of the dividend is made with reference to the
dividend cover as well as current performance trends, including sales and profit after tax together with cash generation. Diageo
targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of
1.8-2.2 times. For the year ended 30 June 2022, dividend cover was 2.0 times. The group will keep future returns of capital,
including dividends, under review through the year ending 30 June 2023 to ensure Diageo's capital is allocated in the best way to
maximise value for the business and stakeholders.
An interim dividend of 30.83 pence per share will be paid to holders of ordinary shares and US ADRs on register as of 3 March
2023. The ex-dividend date is 2 March 2023. This represents an increase of 5% on last year’s interim dividend. The interim
dividend will be paid to holders of ordinary shares on 13 April 2023 and to holders of US ADRs on 18 April 2023. A dividend
reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 17 March
2023

Ian (I hold).

[idpickering]

Further to the above, the RNS is here: https://www.investegate.co.uk/diageo-pl ... 00058949N/

DGE down 4% as I type. I thought the results were good?

Ian.

[Dod101]

Further to the above, the RNS is here: https://www.investegate.co.uk/diageo-pl ... 00058949N/

DGE down 4% as I type. I thought he results were good?

Ian.

I thought the numbers looked fine as well although the profit margin was down a bit. However markets are fickle and maybe in this case best ignored if that is the only concern. In the current climate I would have thought things were looking fine.

Dod

[Antonyfool]

The Diageo P/e ratio is relatively high for the sector at around 25, so as has been already mentioned, the markets are unforgiving on any sniff of what could be seen as bad news

[idpickering]

Further to the above, the RNS is here: https://www.investegate.co.uk/diageo-pl ... 00058949N/

DGE down 4% as I type. I thought he results were good?

Ian.

I thought the numbers looked fine as well although the profit margin was down a bit. However markets are fickle and maybe in this case best ignored if that is the only concern. In the current climate I would have thought things were looking fine.

Dod

Thanks for your input Dod. DGE down 4.7% as I type. I very much agree with your comment, and this blip won't budge me fom continuing to hold DGE for the long term. FWIW I've held DGE since 22 Jun 2016. with an average buying price of £18.54 ps.

Ian.

[Dod101]

Further to the above, the RNS is here: https://www.investegate.co.uk/diageo-pl ... 00058949N/

DGE down 4% as I type. I thought he results were good?

Ian.

I thought the numbers looked fine as well although the profit margin was down a bit. However markets are fickle and maybe in this case best ignored if that is the only concern. In the current climate I would have thought things were looking fine.

Dod

Thanks for your input Dod. DGE down 4.7% as I type. I very much agree with your comment, and this blip won't budge me fom continuing to hold DGE for the long term. FWIW I've held DGE since 22 Jun 2016. with an average buying price of £18.54 ps.

Ian.

That is a significant drop. Maybe we are missing something.

Dod

[Arborbridge]

The Diageo P/e ratio is relatively high for the sector at around 25, so as has been already mentioned, the markets are unforgiving on any sniff of what could be seen as bad news

DGE has always been high, reflecting its quality and prospects, I suppose.

P/e is supposedly linked to the long term return, but I do often wonder how much is due to fashion.
What I mean is, if the current "ethos" is that the market regards a P/e of "n" to be reasonable, I'm not sure why it should not change in future to 0.5*n. Of course, there are limits to this, but I can quite see fashion potentially dictating a large range. (We forget those black tulips at our peril).

It that sense, all higher P/es are therefore more vulnerable than lower ones.


Arb.

[idpickering]

Further to the above, the RNS is here: https://www.investegate.co.uk/diageo-pl ... 00058949N/

DGE down 4% as I type. I thought he results were good?

Ian.

I thought the numbers looked fine as well although the profit margin was down a bit. However markets are fickle and maybe in this case best ignored if that is the only concern. In the current climate I would have thought things were looking fine.

Dod

Thanks for your input Dod. DGE down 4.7% as I type. I very much agree with your comment, and this blip won't budge me fom continuing to hold DGE for the long term. FWIW I've held DGE since 22 Jun 2016. with an average buying price of £18.54 ps.

Ian.

That is a significant drop. Maybe we are missing something.

Dod

Maybe, but I'm not going to fret about it. Perhaps someone else hereabouts can offer something on this?

Time for a drink, of the non-alcoholic variety of course lol. Incidently, I don't touch alcoholic beverages anyway.

Ian.

[monabri]

Perhaps a case ( no pun intended) of being able to discern how much of the 18.4% increase in sales came from "strong organic sales growth " versus "strengthening of the US dollar"?

If you think back to what was happening in the previous reporting period ( Truss and Kwartang, £ to $ almost at parity) and then reflect on a recent recovery ('cough') in Sterling. I seem to recall 1.05 $ :£ and it is now 1.24. There's an 18% difference, albeit that was peak pessimism. Looking forward, that exchange rate bonus has (currently) evaporated. The US is a big market for DGE.

[Arborbridge]

Perhaps a case ( no pun intended) of being able to discern how much of the 18.4% increase in sales came from "strong organic sales growth " versus "strengthening of the US dollar"?

If you think back to what was happening in the previous reporting period ( Truss and Kwartang, £ to $ almost at parity) and then reflect on a recent recovery ('cough') in Sterling. I seem to recall 1.05 $ :£ and it is now 1.24. There's an 18% difference, albeit that was peak pessimism. Looking forward, that exchange rate bonus has (currently) evaporated. The US is a big market for DGE.

....I'm taking the long view.

[ADrunkenMarcus]

FWIW I've held DGE since 22 Jun 2016. with an average buying price of £18.54 ps.

FWIW I've held (inherited) DGE since October 1998 with a book cost of £5.53. Capital growth of 541% over that period even with today's fall and it won't be many more years before it's paid me over 200% of the book cost in nominal dividends. Keep calm and keep holding!

Best wishes


Mark.