- Niche drink booms can be exploited
- De-rating last year was slightly overdone
Diageo (DGE) has a growth strategy rooted in getting the world’s drinkers to trade up to more premium brands. This may appear to be at odds with people being more likely inclined towards cutting back, but in most of the group’s key markets there is a general trend of ‘drink less, but drink better’.
This approach plus support from a number of drink ‘booms’ should enable Diageo to sustain its target 5-7 per cent revenue growth, a more than respectable rate for what is still a consumer staple. There are growth segments in which Diageo has no exposure meaning growth could have been stronger but after a sharp de-rating in 2022, a PE of 20x is probably a shade too low given the rate of growth and the robust nature of the investment story.
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