A host of problems

Diageo has struggled over the past few years for several reasons. One major issue has been the slowing demand after the post-pandemic boom. During lockdowns and reopening periods, alcohol sales surged as consumers stocked up and socialised more. That created difficult comparisons for future years.

More recently, weaker consumer spending (especially in Latin America and North America) has hurt sales growth. The company also warned about softer trading in regions like Latin America due to inventory issues and slowing economic conditions.

It’s also true that younger consumers may be drinking less alcohol than previous generations. The rise of run clubs and health-tracking bands helps to highlight that the next generation would rather go out for a run than hit the bar. Obviously, this hasn’t been good news for Diageo.

And finally, it simply hasn’t been a fashionable stock lately. In a market obsessed with AI and high-growth technology companies, slow-and-steady consumer staples businesses have fallen out of favour.

The value play

Right now, the stock trades on a far lower valuation than it has historically. With a price-to-earnings ratio of 12.67, it’s below the FTSE 100 average of 16.3. So not only is the stock better value than it was in the past, but it’s also good value relative to the rest of the index.

Further, Q3 results published last week easily beat market expectations. Group organic revenue jumped 0.3% for the period, beating the 2.3% fall that people were forecasting. This might not seem like much to shout about, but for a battered stock, it could be the start of green shoots emerging.

The new CEO Dave Lewis is also talking up the prospects of a strong turnaround. In the update, he said “progress on the redesign of our new strategy and the shaping of a more competitive operating framework is well under way.” After all, alcohol consumption isn’t disappearing overnight. Premium spirits remain deeply embedded in social culture worldwide, and emerging markets could still offer significant long-term growth opportunities.

Not at the top of my list

I do struggle to justify this being the best value stock in the index. I believe that while it is undervalued, the trend could persist until we get more catalysts to suggest the turnaround under the CEO is really starting to yield results. The 5.14% dividend yield provides some useful income for those who hold the stock and are waiting for the share price to rally. Yet with the risks around consumer weakness serious (and potentially long-term), I think there are other value plays that I’m more confident about investing right now.

The post Down 53% in the past 5 years. Is this the best value stock in the FTSE 100? appeared first on The Twelfth Magpie.

The company is set to release its results for the full (financial) year on 6 August. The more interesting thing, though, is a strategy update.

What’s been going on?

I’m a Diageo shareholder. I haven’t actually owned the stock that long in the grand scheme of things, but it feels like it’s been forever. 

It’s just been one thing after another. We’ve had tariffs, weak consumer spending, and preferences shifting away from alcohol.

To try and get things back on track, Sir Dave Lewis has been appointed CEO. And the early signs have been promising. There are plans to sell off some peripheral assets to focus on core brands. The dividend has also been lowered.

This is a good start. But the firm hasn’t recruited ‘Drastic Dave’ just to divest a stake in an IPL cricket franchise.

The obvious moves have been made – and there’s nothing wrong with that. But investors want to know what the plan is going forward.

What’s coming next?

It’s a little hard to know exactly what Diageo can do. Some of the challenges it’s been facing are beyond its control. 

In the US, consumer sentiment is at its lowest levels in five years. And that’s an ongoing challenge in one of the company’s key markets.

Source: Trading Economics

Weak consumer sentiment might seem like a reason for a drink. But that’s not how they see it across the Atlantic and that’s why sales are still weak.

There’s not much Diageo can do about inflation or higher mortgage rates. What it can do, however, is focus on being as competitive as possible.

Importantly, it’s not that Diageo’s competitive position is weakening. The firm’s premium spirits aren’t losing much ground.

The trouble is that the market for those drinks is contracting. And Drastic Dave’s job is to figure out how to keep the company moving forward in this environment.

Ready to drink?

Investors are expecting ready-to-drink (RTD) products to be a big part of the company’s strategy. And this makes a lot of sense. 

If consumers are watching their finances, offering them something affordable is key. But while Diageo has been slow off the mark, it has a chance to catch up.

Switching costs in this industry are low. That means there’s always scope for new entrants to win market share from established leaders.

Ordinarily, that’s a risk for Diageo’s market-leading brands. But it’s in the unusual situation of being behind in the RTD market.

That might mean that being fashionably late to this particular cocktail party isn’t the end of the world. And it’s initiatives like this that I’ll be watching for on 6 August. 

Beyond the numbers

When Diageo releases its end-of-year results, I’ll be paying close attention. But it won’t just be the numbers I’ll be looking at. 

We’ve already had three quarters of updates, so most of the data for the year is already in. The big question is what’s coming next.  

Drastic Dave hasn’t wasted time getting to work and that’s a very good thing. But it’s now time for the more difficult bit to get started.

The post Dear Diageo shareholders, mark your calendars for 6 August appeared first on The Twelfth Magpie.

Is it time I threw in the towel and sold up? If broker forecasts are right, the answer seems to be an emphatic ‘no’. City analysts are largely confident the FTSE 100 share is about to rebound, as the table shows:

But how exactly will Diageo shares spring back to life as brokers predict?

Stronger trading

Diageo’s decision to focus on premium drinks couldn’t have been timed much worse. It’s left the company far more exposed to falling consumer spending, with people switching down to cheaper spirits in recent years. Profits have tanked and debt’s risen. The dividend has even been cut for the first time in decades.

The problem for the drinks giant is the Iran war has raised the prospect of a prolonged downturn. Inflation’s rising again, and economic growth’s weakening as energy prices rise. Yet I’m confident the company could still rise in value over the next year.

Why? First, Diageo’s been more resilient lately, with sales rising 0.3% in the March quarter. A 2%-3% decline had been expected. Helped by its powerhouse drinks portfolio, I’m hopeful of more better-than-forecast trading numbers.

Building back better?

But that’s not the main reason I’m optimistic. Under Sir Dave Lewis, the company’s about to embark on widescale changes after years of underperformance. These range from divesting non-core brands and cutting $625m of costs over three years, to expanding in fast-growth areas (like ready-to-drink cocktails).

Lewis has proven an expert in turning around struggling businesses, such as he did with Tesco. I’m hopeful of similar success here, signs of which could send Diageo’s share price higher.

Diageo has an enviable portfolio of brands across multiple price points and the brand armory to restore the competitiveness of its offer in the mainstream segment, the area where incoming CEO Sir Dave Lewis has spent his career.

RBC Capital Markets

£5,000 could turn into…

What might Diageo shares be worth by next May then? If those broker forecasts we discussed earlier are accurate, a £5,000 investment today will be worth:

• £7,850, based on the most bullish estimate.
• £4,800, according to the lowest price forecast.
• £6,320, based on broker consensus.

Correctly predicting a stock’s performance over the near term is famously difficult however. As investors, all we can do is make an educated prediction based on the facts. So what is the outlook for Diageo’s share price?

Though risks are higher than before the Iran war, I’m confident the Guinness maker could bounce back strongly as its transformation begins. And with the company’s valuation currently so low, I think further good operational news could fuel a stunning rebound. At £15.09 per share, the forward price-to-earnings (P/E) ratio of 13.4 is miles below the 10-year long-term average (20-21).

At these levels, I think Diageo shares are worth serious consideration. There may be bumps along the way, but I’m optimistic this FTSE stock will recover strongly over time.

The post Down 31%, how much could £5,000 of Diageo shares be worth in 12 months? appeared first on The Twelfth Magpie.

Yet many blue-chip shares just keep heading higher. Should I be worried about this?

A far-from-perfect backdrop

The FTSE 100 index has jumped roughly 20.5% over the past year, while the tech-heavy Nasdaq 100 has doubled that. Admittedly, a year ago was a low starting point because that was when President Trump opened a can of worms in the shape of punishing US tariffs.

With major indexes not far off all-time highs, clearly most investors are not too concerned at the moment. Yet global food prices have just jumped for the third month in a row, driven higher by the Iran war. Cereal, vegetable oil, and meat are all up.

Meanwhile, oil and energy prices are high, piling more misery on inflation-weary consumers. I have one friend who’s debating whether the family’s annual summer trip to Greece is affordable this year.

Naturally, many companies are also cautious. For example, JD Sports Fashion said earlier this week that it expects a drop in profits this year due to consumer pressures from the Iran war and high youth unemployment.

The Middle East conflict is far from over, with much of the inflationary pressure has still to work its way through the system this summer. Then there’s Ukraine, where the tragic war grinds on, threatening to spread to neighbouring countries.

To top all this off, there’s the AI wildcard. This technology is allowing companies to become more efficient, potentially leading to millions of jobs disappearing worldwide in the next few years.

Given the backdrop, I’m quite surprised that investors aren’t more worried. InterContinental Hotels Group (IHG) stock, for instance, just hit an all-time high week. I own IHG shares, so I’m not complaining. Just a bit baffled!

Dry powder

Now, I should say that none of this is to scare anyone. Remember, corrections are perfectly normal and even a healthy part of stock market investing. They’re usually a tremendous time to put money to work.

Therefore, it’s probably wise to have some cash on the sidelines in case we see a pullback this summer. In the meantime, I’ll continue to invest when I like what I see.

What stock has caught my eye?

Diageo (LSE:DGE) has certainly struggled with weak consumer spending and changing drinking habits among younger generations. Its share price is down 53% in five years.

Given everything I’ve written, and the ongoing consumer weakness risks, you would think I’m keen to avoid Diageo. However, while I’m not going to buy any shares at all-time highs, this unpopular one looks attractive to me for a couple of reasons.

First, world-class brands like Guinness, Johnnie Walker, and Smirnoff continue to grow globally in many locations. And turnaround specialist CEO Dave Lewis has identified ways to make Diageo more competitive to boost overall volumes.

The stock also looks cheap, trading at 13 times forward earnings. There’s no market froth here — quite the opposite.

Finally, the stock’s sporting a 3.1% dividend yield, so it could boost my passive income while I patiently await a potential turnaround. I reckon the Guinness maker is worth considering today.

The post Here’s what is baffling me about the stock market today appeared first on The Twelfth Magpie.

That’s a substantial figure — and for most investors, it quickly reframes the challenge. This is no longer just about saving steadily into an ISA, but about the type of investments needed to build meaningful long-term income power.

Rather than staying at the level of theory, I’ve highlighted two UK stocks I believe could be worth considering for investors aiming to move towards that kind of income target over time.

Cash king

Fresnillo (LSE: FRES) is not a typical FTSE 100 stock. As a leveraged play on precious metals, it can generate extraordinary cash when conditions are favourable.

FY25 showed that clearly. Revenue rose 27.6% to $4.6bn, EBITDA (earnins before interest, tax, depreciation, and amortisation) jumped more than 80% to $2.8bn, and profit before tax nearly tripled. Earnings per share increased more than fourfold year on year.

Importantly, this was achieved with average realised prices of around $43 for silver and $3,500 for gold. Despite recent weakness, spot prices remain well above those levels.

That matters because Fresnillo’s earnings power is highly sensitive to metal prices. When they move, profits don’t just rise gradually — they accelerate sharply.

A structural boost for metals

The longer-term backdrop for precious metals still looks supportive. Silver demand is driven by industrial uses such as solar, EVs, and electronics, alongside its role as a monetary hedge. At the same time, supply remains constrained due to long mine development timelines.

Gold is also benefiting from central bank demand and fiscal uncertainty, supporting the case for structurally higher prices over time.

Of course, this is not a low-risk business. Mining is operationally sensitive, and rising energy costs, falling grades, or production disruptions can quickly pressure margins even in strong price environments. Regulatory risk in Mexico is another factor investors cannot ignore.

But despite that volatility, I still think Fresnillo offers exposure to a structural precious metals trend that is far from over. That’s why I view it as one to consider alongside other long-term ISA holdings

Fallen giant

Diageo (LSE: DGE) has been one of the FTSE 100’s more painful large-cap performers in recent years.

But the key question for investors is whether this is a structural deterioration in the business — or simply a cyclical reset being mispriced by the market.

What matters is that underlying consumption trends have not collapsed. Consumers are still drinking, but they are trading down and moderating their spending rather than exiting the category entirely. That points to cyclical pressure, not a permanent demand shift.

Premiumisation — one of Diageo’s key long-term growth drivers — is also not broken. High-end brands such as Johnnie Walker, Tanqueray, and Don Julio continue to perform well, even if growth has become more uneven across price points.

In response, the group is adjusting its portfolio to meet demand where it’s strongest. This includes smaller pack formats and faster-growing ready-to-drink categories. That’s more about repositioning than strategic change.

The broader takeaway is that the market may be overpricing short-term weakness while underestimating the resilience of the underlying brand portfolio.

For long-term investors, that combination of cyclical pressure and structural strength is exactly where value opportunities tend to emerge — which is why I see Diageo as one to consider.

The post How to build a £20,000-a-year passive income from a Stocks and Shares ISA appeared first on The Twelfth Magpie.

Diageo’s descent

On New Year’s Eve 2021, Diageo stock closed at 4,036p — its highest closing price. Alas, the share price has been sickly ever since. On 23 March, it hit a 52-week low of 1,350p, down two-thirds (-66.6%) from the record high.

At this point, many shareholders would have been despairing. I know, as I’m in this group. My family portfolio bought this stock for 2,806.6p a share in January 2024. When the shares bottomed out on 23 March (down 51.9% from our entry price), I was considering cutting our losses.

However, things may be finally looking up for Diageo’s owners. On Thursday, 7 May, the shares closed at 1,534.2p, valuing the group at £34.9bn. That’s 13.6% above their 2026 low, with the stock jumping after the third-quarter statement released on Wednesday, 6 May.

Turning point?

With the shares down 29.1% over one year and 53.3% over five (excluding cash dividends), Diageo’s owners are desperate for good news. Fortunately, the latest trading figures offered some glimmers of hope.

With the FIFA World Cup running from 11 June to 19 July, wholesale customers have started stocking up on booze for pubs, clubs, and bars. Group sales rose by 0.3%, far ahead of the 2.3% decline forecast for the three months to April. If this early turnaround continues, it would be a solid start for new CEO Sir Dave ‘Drastic’ Lewis.

While Latin American sales leapt by 16.2%, sales dived by 9.4% in the key US market, with spirits exceptionally weak. In contrast, European sales rose by 8.8%, with pints of popular stout Guinness leading the way.

In order to invest in growing brands and markets, Lewis announced a cut to Diageo’s dividend in late February. The turnaround specialist also plans to lower prices and bring down the group’s net debt.

Cheap shots?

Currently, Diageo shares trade on 19.6 times historic earnings and offer a trailing dividend yield of 3.9% a year. But this cash yield will drop again when the reduced final dividend is revealed. While this stock doesn’t look wildly overpriced, it’s also not an obvious bargain buy.

For me, this Footsie share appears to be a binary bet — either a recovery play or a value trap. If the world’s biggest football tournament goes well, then sales could enjoy a strong boost. Personally, I’d like to see sales and margins rebounding with costs kept firmly under control.

In summary, there’ve been no major shocks in Sir Dave Lewis’ first four months in charge. For now, I’m happy to give him a full year or more to turn this tanker around. That said, if Diageo continues to struggle, then 2026 may be my family’s last year of ownership of this once-proud British business!

The post After years of pain, is the Diageo share price looking up? appeared first on The Twelfth Magpie.

So could it be that the long-awaited turnaround in the alcohol company’s shares has begun?

Facing down the big challenges

Two problems have dogged Diageo over recent years, which may or may not be related. One is the overall decline in alcohol consumption, notably among younger generations.

The second is a drop in demand for premium-priced white spirits. That may be a normal part of the economic cycle as consumers tighten their belts, or it could be a permanent shift as wider patterns of alcohol use change.

What then, has this week’s news from Diageo helped investors learn when it comes to these important points?

The company maintained its full-year guidance of a 2%-3% fall in organic net sales. White spirits sales in Greater China fell by an unspecified double-digit percentage. Even more alarmingly, US spirits organic net sales fell by 15% year-on-year.

In the equivalent period last year, some US customers ordered more than usual to try and squeeze shipments through customs before tariff changes kicked in. Still, the sharp decline in Diageo’s biggest market is alarming.

More positively, spirits organic net sales grew strongly in Europe. This was pinned on increased sales of Scotch whisky, led by the Johnnie Walker brand.

A mixed bag then, but with enough data suggesting that white spirits sales continue to be an area of significant concern.

Diageo’s next moves are crucial

Fixing the demand side of the business is crucial to its long-term health, in my view.

What comes next matters. Can Diageo reignite consumer demand for its more premium white spirits? Or will it focus on cheaper spirits and ales, potentially helping sales volumes but hurting profit margins? That choice will be crucial.

An efficiency programme is on course to deliver around $300m of cost savings by the end of the current financial year. Thats welcome news for the company’s profitability, but you cannot cut your way to growth.

My take as a shareholder

Something else that concerns me is this year’s free cash flow forecast. At $3bn, it is higher than last year, which is positive. But my worry was that that number excludes around $100m of costs as the company builds stock levels ahead of a planned software change.

I see working capital cash flows, even one-offs, as cash flows. If Diageo is willing to exclude this cash movement, what other details might I need to pore over in the accounts to inform myself properly as a shareholder about the company’s financial performance?

Falling sales are a problem and, as mentioned, I have concerns about future profit margins too. A swingeing dividend cut this year badly hurt my confidence in management’s priorities.

With its strong brands throwing off several billion pounds a year in free cash flow, I remain upbeat about the business foundations. But there is a lot of work still to be done. Combined with wider market trends, that means I think Diageo shares could potentially continue to tread water for a while.

I will hang on to mine for now — but will not be buying any more.

The post Are Diageo shares out of the woods yet? appeared first on The Twelfth Magpie.

In the past month, Diageo has been teasing another comeback. It has risen 12%, including 5.3% today (6 May).

Let’s take a look at what’s behind the latest upwards momentum.

All hail the King

There have been two positive developments in the past week. First, on 30 April, President Trump announced the removal of tariffs and restrictions on Scotch whisky. This followed a four-day state visit of King Charles to the US.

“The King and Queen got me to do something nobody else was able to do, without hardly even asking!” That’s what Trump wrote on social media.

As the world’s largest producer of Scotch, with brands like Johnnie Walker, Lagavulin and Talisker, the removal of the 10% tariff is obviously welcome news for Diageo. 

Second, we had the FTSE 100 company’s fiscal Q3 report today, which showed a 0.3% rise in organic net sales. Admittedly, that’s hardly earth-shattering growth, but the market was excepting a 2.3% fall. So it was a surprise beat.

Net sales increased 2.3% to $4.5bn, but it was a mixed picture underearth. Strong organic growth in Europe (+8.8%), Africa (+17.1%), and Latin America and the Caribbean (16.2%) helped offset a 9.4% fall in sales in key market North America.

CEO Sir Dave Lewis said: “North America remains our biggest challenge, where market conditions are soft and our offer needs to be more competitive. Actions are already underway to address this“.

Diageo reiterated its full-year guidance for a 2-3% decline in organic net sales and $3bn in free cash flow.

The crown jewel

The ongoing US weakness is a worry, especially as Q3 included distributors stocking up ahead of the FIFA World Cup (the tournament is being hosted across North America). US Spirits organic net sales declined by 15.4%.

Tequila is turning into a nightmare. Diageo has invested a lot of money and time into building up its tequila portfolio, which includes Casamigos and Don Julio. But sales here fell by double digits, driven by “tough prior year comparatives, competitive pressure and category softness“.

On the other hand, Guinness continues its remarkable ascent. It drove strong sales in the UK and Ireland, did well in the US, and Asia Pacific (double-digit sales growth). This incredible brand really is the crown jewel.

Meanwhile, in a blast of nostalgia, Smirnoff Ice is on fire. It grew strongly in North America and Brazil.

The surging RTD (ready-to-drink) category is something Diageo is looking to lean into. Canned cocktails are perfect to drink at picnics and music festivals, and tap into demand for smaller and affordable sizes among people on GLP-1 weight-loss medications like Mounjaro.

Can the stock chug higher?

Inflation is clearly an ongoing challenge, but there are some positive signs in this trading update. RTDs and introducing Guinness to more markets seem like open goals.

With Diageo still down 57% in three years, and offering a 3.2% dividend yield, I’m going to buy some shares in May. I think the stock can head higher from here.

The post Here’s why the Diageo share price is up 12% in a month! appeared first on The Twelfth Magpie.

The news has come at a welcome time for the beleaguered drinks manufacturer. The share price has fallen 55% in the last five years. This has led many to wonder (including me) whether the approval from a certain American potentate could kickstart a resurgence for the owner of Guinness, Johnnie Walker and Smirnoff.

Big news

First off, what was the news? The US is going to jettison all tariffs on Scotch whisky following the visit of King Charles III. It seems Mr Trump was won over by the King’s jokes about his predecessors trying to burn down the White House in 1814 and how if it weren’t for ‘us’ then you’d all be speaking French!

Or as Trump himself wrote on Truth Social in typically inimitable fashion: “The King and Queen got me to do something nobody else was able to do, without hardly even asking!”

Diageo has around 30% market share for Scotch whisky in the US, one of its biggest markets. So this has come at a particularly good time as one of the causes for concern for the FTSE 100 drinks titan was weakening demand across the pond.

The tariffs – at one point looking like they would be as high as 27.5% on all goods – were part of the reason for the massive ongoing fall in the Diageo share price. So the removal of the current 10% levy on whisky is welcome news indeed.

The 4% increase in share price on the day of the news was a pretty big move – a sign the stock could be heading in the right direction. Although there’s plenty more to consider.

A buy?

Welcome as the news is, the ongoing ‘tariff wars’ are only one part of the equation here. The bigger concern is one of declining consumption, particularly in key markets such as the US (tariffs or not) and the fall in sales of white spirits in China. The greatest worry is that this is the shape of things to come. And of course, the removal of tariffs could be followed up by new ones given Trump’s unpredictability.

Could all the worries be overblown? According to analysts covering the stock, the answer could very well be yes. Forecasts for the next two years look broadly optimistic with volume, revenue and earnings set to increase substantially in almost every region.

And if demand picks up then this could be a chance to buy in at a low valuation. The forward price-to-earnings ratio of 12 looks like one of the FTSE 100’s cheapest offerings. I’d not be surprised to look back on this as a low point in the years ahead. I think it’s worth considering.

The post Did Donald Trump just kickstart Diageo shares? appeared first on The Twelfth Magpie.

I’m talking about Diageo (LSE: DGE), one of the world’s champion booze sellers. And how can booze go out of fashion? Well, it’s all about soaring inflation and the pressure that’s putting on disposable incomes. We’ve seen such times before. But this time it’s hitting globally, and Diageo’s market is international.

So why am I upbeat about the prospects for the company behind such world-beating favourites as Johnnie Walker, Guinness, and Smirnoff?

The outlook

The way the Diageo share price has gone, analysts must surely be expecting a few shocking years of company performance right now. And that’s the kind of thing that could take it firmly off my list of Stocks and Shares ISA candidates. Here’s what the City forecasters see happening between 2025 and 2028:

• Earnings per share growth of 61%
• Price-to-earnings (P/E) falling from 23 to 12
• Net debt dropping from $21.5bn to $15.6bn

Now, hang on… that doesn’t sound like a sell-and-go-away stock to me.

But there are other issues, of course. With February’s interim results, the company reported a 4% decline in net sales — with operating profit down 1.2%. For the full year, management lowered its guidance to suggest a 2%-3% fall in organic net sales.

It’s all down to a decline in volumes and a lower price mix — mainly from markets in North America and China. The pains of international trade tariffs can’t be helping.

The plan

Part of the remedial work involves cutting the dividend in half. We should be looking at an unexciting 2.8% to 3% yield for the full year, depending on which forecaster we ask. That’s not brilliant. But it’s not a disaster either.

The share price crunched down on the day of the announcement. And at the time of writing, it’s fallen 22% since market close on the eve of the results. But quite a few commentators believe the sell-off was overdone — and I’m one of them.

Debt forecasts are looking better now. But net debt had been growing uncomfortably over the past few years. And seeing a company paying high dividends while that’s happening always makes me a bit nervous.

The biggest positive sign I see of a turnaround for Diageo is in the form of a person. It’s Sir Dave Lewis, previously the force behind Tesco‘s impressive turnaround — and now brought in to try to do the same here.

Competitive strategy

Sir Dave revealed three immediate priorities. In his words, they are:

• “Build competitive category strategies, winning with relevant brands“
• “Customer, customer, customer“
• “Redesign of the Diageo operating framework to drive sustainable returns“

There are difficult days ahead, for sure. And I could see further Diageo share price weakness before things get better. But Stocks and Shares ISA investors are in it for the long term. And I definitely rate Diageo as one to consider.

The post Could this FTSE 100 company, down 54% in 5 years, be a perfect Stocks and Shares ISA buy? appeared first on The Twelfth Magpie.