Diageo plc

Analyst thesis

Our recommendation is based on: 

• High margin quality portfolio focused on spirits (~80% of revenue).
• Attractive valuation levels relative to history. Trading at 30-year level lows. Organic operating profit growth is expected to be at low to mid-single digits, which provides some support against a value trap.
• Premiumisation of core products has been a protector of organic growth across some regions.
• Margin levels, cost, and volume pressures seem to be in a cyclically low point and position the company for upside potential in a recovery period.