LK Hyman
10 Oct 2017
Economics 101 for Ivan You have two investment opportunities: One involves spending $1,000 million for a tequila company that sells 120,000 cases a year of a relatively unknown tequila made in Mexico, most of which is exported to Donald Trump's USA.The other involves spending $45 million on refurbishing two iconic Scotch malt whisky distilleries with a capacity of just under 100,000 cases a year of famous old brands for which whisky lovers are prepared to cut off their left nut and pay the earth.You have the ability to expand the tequila production and can get the product to market quite quickly ("not a drop is sold until it's cold"
whereas the whisky production is limited by the distilleries' capacity and will take a few years before the cash starts rolling in from sales.Create a spreadsheet detailing the NPV of both investment opportunities using traditional DCF techniques and advise which investment is more attractive from the ROCE perspective and whether you would invest your shareholders' money in one, both, or neither of these opportunities.Oh, and when you've done that, send an email to George Clooney's chum Randy Gerbil saying that Gerber Spirits Company does NOT own Casamigos.[link] on the flybridge
Bill1703
10 Oct 2017
Re: port ellen "Port Ellen is on Islay, its Brora that is on the east coast of Sutherland just up from Dunrobin Castle."Spot on OP... and two wonderful, and under-appreciated corners of the world IMHO. The former next to the charming old port of the same name into which you steam, on an island where every road sign is basically a short-list of some of the world's All-Time Great whisky labels... Lagavulin, Ardberg, Laphroaig, Bowmore, and more. And the latter as a rarely-trod coastal gem, with a magnificent and long-hidden rustic golf course, bestrewn with grazing sheep and cattle, which is only now being discovered by the travelling golf circuit, as I hear it."One wonders why the decision to reopen wasn't taken yonks ago given the crazy price that Port Ellen in particular commands."Indeed, LKH... having been to said distillery, or at least studied it from a short distance, it remains in perfectly reasonable structural shape. I am guessing that the huge success of Bruichladdich, at the other end of the island - where entrepreneurial new owners have resurrected a similarly moth-balled facility and brand, with considerable flair and innovation, and to great success - has probably focused their mind?
old_punter
10 Oct 2017
Re: port ellen Port Ellen is on Islay, its Brora that is on the east coast of Sutherland just up from Dunrobin Castle. Brora I was told there is a more peated version of Clynelish so like an Islay malt. I have tasted neither and suspect will not be around either to try the new. No matter, plenty of wonderful others to enjoy before falling off the twig.
old_punter
10 Oct 2017
Re: Diageo tops list ... Just maybe as a marketing driven organisation, some grunt at DGE monitors what is posted here and elsewhere and the unflattering comments from LKH and Games re the latest acquisition's price had some effect. Revamping two distilleries with strong brands at a reported cost of £35m is a much better way to go. As LKH says, probably not good news for those who paid four figure sums per bottle from the distilleries to be reopened or from other closed distilleries.
LK Hyman
10 Oct 2017
Diageo tops list ... ... of best governed companies, according to the Institute of Directors.Clearly the criteria did not include "Doing M&A at sensible multiples" LOL. Apparently board diversity was a big factor. There's no doubt that Ivan surrounds hisself with a lot of senior ravers, so that's mebbe why Diageo won.Good to see Port Ellen and Brora distilleries being re-opened though I suspect that that will have a dampening effect on the price achieved for the current limited stock of product from the "old" distilleries. Overall, though, the profit opportunity from substantial volumes of new product, albeit a long way down the road, is clearly excellent. One wonders why the decision to reopen wasn't taken yonks ago given the crazy price that Port Ellen in particular commands.LKH on the flybridge
pearlsasinger
10 Oct 2017
Re: port ellen Valette2032 is only 14 years and 3 months away.I have no doubt you will make it!Googlers live longer.best wishes
valeite
09 Oct 2017
port ellen has been closed for 35 years but is to be bought back into production .port ellen is on the remote coast of Sutherland (where's me google ) .'tis mega expensive but here's the rub ,they're going to produce from 2020 with the first scotch available in 2032 .I like to see business think long but i'll never see this whisky alas .
old_punter
29 Sep 2017
Re: Pref share dividends Quite agree with LKH, best source of info is usually the company website, on which the accounts and results presentations. Foolish to invest without having taken some sort of look at these, just the style of website can tell you something about the company.Had a brief look at the DGE website recently (didn't much like its style, too marketing for my taste) to see if they mentioned Clynelish, as I visited on hols there last week and took away a couple of bottles of the amber nectar, £44 a throw, was nearer £30 a bottle I think when I last bought it not that long ago. No mention could I find in the accounts, it comes I suppose at the end of the long list of brands in "other brands" worth c£770m. The mothballed old distillery stores 5,000 plus barrels waiting to get to 14 years (in the b/s at cost I guess) and a few produced by the old distillery called Brora, bottles of which can now sell for over £1k each given its rarity. OK, all this is below the radar for a £60bn company but Clynelish is only one of a number of top drawer malts, sales of which only increased by 2% last year. Diageo leave them well alone I was told by the distillery, evidence of good management or bad?I agree the points made by LKH and Games about DGE management and the ludicrous price for the most recent acquisition, but not much doubt about the quality of the portfolio, the excellent EM middle class growth prospects and the hedge against Labour. But is it too highly rated? Historic P/E of 21 and the results were boosted by fall in sterling, I don't see the £ reversing much of its decline. One is getting at 2440p a 2.5% yield (not great) which should continue to grow at least by 5% pa (accounts say 5% to rebuild cover to nearer twice, previous 4 years was 7.7%pa). The prospect of mid single digit volume growth plus margin growth of 175bp improvement per pre AGM statement seems achievable to me, in which case FWLIW I am keeping my 2% of the wad and am minded to add on either any weakness or positive news.
LK Hyman
29 Sep 2017
Re: Pref share dividends Tomhawbuck,"Do you think I should get out more?"Defo not, m8! I think you should spend even more time poring over the numbers so that you can continue to enlighten us when some rubbish number is input into the ii Fundamentals.I confess that I never bother to study the Consolidated Statement of Changes in Equity thingy. What matters to me is the group balance sheet and the cash flow numbers first and foremost, followed, quite a long way behind, by the P&L because, if Kathryn wants to, she can make the latter sit up and beg to any tune she dictates, so it's not as important as the first two.If I was allowed to look at only one set of numbers it would be the cash flow. Only a criminal bean counter can fiddle that.Fingers crossed ii takes note of the many criticisms that are regularly directed at its Fundamentals. It would be nice to feel that they were sufficiently reliable that it would not be necessary, as it is now, to go to the company's own website for really basic stats.LKH on the flybridge
tomhawbuck
29 Sep 2017
Re: Pref share dividends I can tell you where these mysterious figures come from - they are from the Diageo Consolidated Statement of Changes in Equity and the are the figures for equity attributable to non-controlling interests for 2015. 2016 and 2017 and do not represent dividends. Clearly the person (or the machine) that moves the figures from the Diageo Annual Report to the Fundamentals tab here has chosen the wrong figures or mistaken dividend for equity or something. Do you think I should get out more?
Bill1703
28 Sep 2017
Re: Pref share dividends "The info put up on 'Fundamentals' is often utter carp. I think ii must employ a tame monkey, or an intern, to input the data... I repeat my belief that Diageo has NO preference shares, ergo no preference divis..."Yes, LKH, absolutely no evidence of prefs here!Looking at the 'Fundamentals' tab, to call it carp is being kind... utter stihe, more like. In the Annual Accounts section, the info under both "preference dividends" and "ordinary dividends" is nonsense, for the past few FY periods, as is (I think consequently) that in a few other rows. We really need to train people on here to be able to read results statements... it ain't too hard! Yes many on here seem wary of even trying, and preferring the data on various third party sources, such as "Fundamentals" on here, and even basing investment decisions on the same... and that way madness lies!
LK Hyman
27 Sep 2017
Re: Pref share dividends Sage,"Pref divis are listed and shown in the 'Fundamentals' on here....."The info put up on 'Fundamentals' is often utter carp. I think ii must employ a tame monkey, or an intern, to input the data.I repeat my belief that Diageo has NO preference shares, ergo no preference divis. Happy to be corrected!LKH on the flybridge
gamesinvestor
25 Sep 2017
Re: Woody's blog mentions Diageo """"... Either way, we have a situation here in which the starting valuation is high and expectations are high. In our view, that is not an attractive combination. We would rather invest in stocks where valuations are low and expectations are low – which is one of the reasons we remain attracted to the healthcare industry, and have grown increasingly attracted to UK domestic cyclicals in recent months..."""""Bill, I suspect you might be a tad better than Woody.Everything I've seen of his approach is to go in high, buy more lower and then lower and then capitulate and sell. I can list more than 20 stocks he's done aspects of this with and I watch in wonder at the prices he pays and sit scratching my head thinking "am I mad" for not following his lead.I'm beginning to think I'm actually quite sane (although please don't try to confirm this with the missus).Games -- Buy low and sell ......
Bill1703
25 Sep 2017
Re: Woody's blog mentions Diageo "... we have moved quite far past rational argument for traditional valuation metrics. Perhaps the next proper shake out will rebalance things. Personally I choose to have my money in a highly rated Diageo than say a lowly rated imperial brands because I like gin and hate tobacco!" Nimbo - oh yes, beyond rational I agree, and that things will rebalance I am sure... it is just harder to say exactly when! And it would be better (for me at least) if this transpires with the 'cheap' stocks getting a lot less cheap, rather than the expensive stuff being dragged down to their level...The fact remains, even after the recent weakness, you still pay 21x forward EPS (consensus) for DGE... and just 12x for IMB. With the difference even greater if you adjust for differing reporting periods (ie. IMB's "forward" EPS are a lot less forward than DGE's, currently!) And IMB's underlying earnings growth has been better than DGE's, in recent years... why wouldn't it remain so? Sure, smoking is in secular decline in some, mature markets, and drinking is not.... not yet! And both are still perfectly popular in other, bigger parts of the (emerging) world. IMB's dividend growth has been better than DGE's - and forecast to remain so (as long as they can sustain their '10% pa growth' commitment)... yet IMB is yielding twice as much as DGE, pretty much (5.3% vs 2.7%, prospective). And for all DGE's fabled free cash generation capacity, DGE offers only around half the FCF yield that IMB does (c.4% vs c.8%).No, the numbers don't add up for me... any more than they evidently do for Woody! Something has to give, WILL give IMHO... but which way? And when?!"Also with the governments hunt to tax investment income, lower yielding (capital enhancing?!) 'quality' puts me off owning too many high yielders"Yes, too true... I am not at all happy about this. It certainly has made me think about increasing my exposure to high-yielding "value"... though switching to buying expensive 'growth' stocks just because they yield less is at least one step too far - as well as, I am sure, the wrong thing to do right now, on anything more than a short term view.
nimbo1
23 Sep 2017
Re: Woody's blog mentions Diageo Bill those are points well made and i with my rational analysis hat on agree with you. When I look at the investment universe I feel we have moved quite far past rational argument for traditional valuation metrics. Perhaps the next proper shake out will rebalance things. Personally I choose to have my money in a highly rated Diageo than say a lowly rated imperial brands because I like gin and hate tobacco! Also with the governments hunt to tax investment income, lower yielding (capital enhancing?!) 'quality' puts me off owning too many high yielders. Woody is a funny one because he is happy to lecture on the valuation of diageo while punting 10's of millions on biotech start ups which might be worth a lot...or might be worth nothing. I wonder if you make more by buying things at decent valuations and gambling 20% of ones money or having 100% in things like RB, Unilever and Diageo. Dunno. Thinking about it, I'm as bad as woody - I love a punt on the next big technology play!
