Bill1703
23 Sep 2017
Re: Woody's blog mentions Diageo "... The reason the stock is more highly rated than some other stocks is because it will still be here in 15 years time. Instead of lecturing on valuations he should spend his time trying to invest in things where his investors won't loose 75% of their capital."Nimbo, you make a fair point, of course... fund managers in glass houses, and all that.At the same time, Woody is essentially articulating exactly the same case that I - and others - have made on these pages, in recent times. And as such, the argument - that Diageo is highly rated because it'll still be here long term - is both true... and dangerously partial IMHO.It was equally the case a mere 18 months ago - yet the stock was on a dramatically different rating back then. And forward expectations are now much higher, despite the overwhelming evidence that most of the change (in both valuation and expectations) is down to a significant boost from FX, which is now beginning to reverse (as was always likely, sooner or later). And in terms of long term investing, 18 months is nothing... a mere blip on the long term chart. Maybe both Woody and I have it wrong... in which case we can go down in flames together (though I have to say, I have managed to avoid most of the debacles he has endured in recent weeks). But either way, I am entirely with the Woodster in his summary of both his investment ethos and current investment inclination, as below: "... 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..."
nimbo1
22 Sep 2017
Re: Woody's blog mentions Diageo Woody should know better after the last few months. The reason the stock is more highly rated than some other stocks is because it will still be here in 15 years time. Instead of lecturing on valuations he should spend his time trying to invest in things where his investors won't loose 75% of their capital.
II Editor
22 Sep 2017
NEW ARTICLE: Blue-chip index may struggle to advance "A dive below 7,300 earlier this month was hugely significant for the @GB:UKX:FTSE 100. In technical terms, it was a major level of support, which now becomes an equally stiff area of resistance that creates a serious barrier to progress. Numerous ..."[link]
gamesinvestor
22 Sep 2017
Woody's blog mentions Diageo Furthermore, we would argue that this behaviour has introduced more risk to certain parts of the market. To demonstrate this, let’s look at what’s happened to Diageo – a stock we don’t own – over the course of the last eighteen months. Diageo’s share price has risen 48% from its near-term low of £17.48 in June 2016, to end August at £25.92 (much of that share price rise has come in the last few weeks). In June 2016, the company was expected to deliver £1.02 of earnings per share in the current financial year (which ends on 30 June 2018), putting the shares on a prospective price / earnings ratio (PE) of 17.1x earnings.We have previously made the point on this blog that starting valuation (the price you pay when you buy an asset) has a strong bearing on the long-term return that you get from that asset. This applies as much for single stocks as it does for broader asset classes, such as the UK stock market as a whole. Diageo has many attractive characteristics as an investment but, from our perspective, valuation is not one of them, particularly when you consider that this is a business that has been growing earnings at an average rate of 3.3% per annum over the last five years.Part of the share price performance we have seen since June last year has been justified by fundamentals – forecasts for earnings in the current financial year have risen by 15% (albeit currency fluctuations explain part of that increase), so that at the end of August, the consensus forecast for this year’s earnings per share is £1.17. If Diageo’s share price had also risen by 15%, its PE would have remained the same – but the share price has of course risen by much more, to £25.92 so the PE has increased in the space of 15 months from 17.1x prospective earnings to 22.1x. That is why we say the market’s behaviour has introduced more risk. Diageo’s shares now trade in valuation territory which suggests the prospective return over the next ten years will be low.Now, there are many other factors at play here, and other things could have changed to justify Diageo’s share price rise. Perhaps it’s forecast growth rate has increased – in which case, it could grow into that valuation in the years ahead. Indeed, according to Bloomberg Diageo’s anticipated earnings growth rate has improved from about 4% per annum in mid 2016, to about 10% per annum now. So the investment community, it would appear, has become considerably more upbeat about Diageo’s future growth prospects. Perhaps it will grow at 10% per annum over the next few years – in which case its current valuation is almost justifiable. But perhaps it will continue to deliver growth of 3-4% going forward, as it has done in the recent past. 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 (more on that another time…
.Games
sage in the hills
22 Sep 2017
Re: Pref share dividends LKHPref divis are listed and shown in the 'Fundamentals' on here.....SAGE
Steve Gurr
21 Sep 2017
I'm out............... ..............this morning banging a 26% profit in the 'ole SIPP.......watch the SP soar now
nimbo1
21 Sep 2017
Re: Complete Tosh haha, id probably boost sales by 100%.
LK Hyman
21 Sep 2017
Re: Complete Tosh Nimbo,"just ordered another bottle of tanqueray, should boost the share price a little."Why not order a bottle of Casamigos? .... should boost sales of the eponymous tequila a LOT.LKH on the flybridge enjoying two stiff fingers of Captain Morg
LK Hyman
21 Sep 2017
Re: Pref share dividends Sage,I don't think they have any preference shares in issue, do they? Are you perhaps thinking of bonds, some of which they repaid during the year?LKH on the flybridge
nimbo1
21 Sep 2017
Re: Complete Tosh ha you guys love bashing diageo. just ordered another bottle of tanqueray, should boost the share price a little.
sage in the hills
21 Sep 2017
Pref share dividends £1.715 billionI have just noticed that at least twice as much profit is being paid out as Preference share dividends as Ordinary share dividends.Does anyone know who owns the Preference shares ?....and why there has been a big growth in the Pref share dividends ?SAGE
gamesinvestor
20 Sep 2017
Complete Tosh """"On the downside, Diageo was in the red as it said it remained “well set up” to deliver in line with its own expectations but warned that the first-half organic net sales growth rate will be hit by the later timing of Chinese New Year and by the expected impact of the highway ban in India.""""Games -- My car has to be in for a service tomorrow, so I anticipate my portfolio will suffer because of it. --- ppffft !!!
Bill1703
20 Sep 2017
Re: And they said that jargon was dead! "Our expectations on overall performance for the year remain unchanged"Yes, the usual weasel words... Diageo's expectations, rather than the market's? What confidence can we have that the two are the same? And what does "performance" mean... underlying or "organic" trends no doubt, rather than actual results reported??If sterling continues on its current trajectory - or even holds where it is now - then actual results may look a lot less rosy, whatever the "organic" data. And it is perhaps instructive that this update only, and quite emphatically, refers to the "organic" trends...I think the market has taken this quite well, really, given its current propensity to hammer even the slightest hint of disappointment ... only time will tell if it can show similar restraint if actual results reflect a material reversal (if only in part) of last year's massive FX-induced gains.
gamesinvestor
20 Sep 2017
Re: And they said that jargon was dead! "Loved the bit about organic margin expansion being weighted towards H2. "LK -Do I sense a tinge of regret having bailed out of your beloved Captain's house?Perhaps the margin expansion is what they prefer to hit on because it might take the focus off the fact they only sold one case of Casamigos last month - n'est pas?I also sold below even today's 2459 price -- 1.48% down as I type, however, it doesn't change the dreadful decisions the management takes in this company.Ultimately they will come out in the wash I assume?Games
LK Hyman
20 Sep 2017
And they said that jargon was dead! From today's pre-AGM RNS:"Our productivity work continues to move at pace. As previously announced, we are up-weighting our investment behind US Spirits and scotch""at pace"? "up-weighting" Whuh da funh? Who let the consultants in?Loved the bit about organic margin expansion being weighted towards H2. That sounds a lot better than "We're prayin' that H2 will be better than H1". LOL.LKH on the flybridge tracking steadily south
