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In the last four years, the Diageo (LSE: DGE) share price has fallen harder than a hopeless romantic finding true love. After crashing steeply during 2020’s Covid-19 crisis, the FTSE 100 drinks maker’s shares soared in 2021, with the world partying as national lockdowns ended. Alas, since 2021’s surge, this stock has had a hangover like the morning after a stag weekend.
However, with a new boss at the helm, a strategic review underway, and a big recent buy by a key leader, perhaps the Diageo share price will undergo a revival worthy of Lazarus?
Dreadful Diageo
Diageo shares hit an all-time high at end-2021, closing at 4,036p on New Year’s Eve. Unfortunately, every year since then has been a struggle for long-suffering shareholders.
As I write, the Diageo share price stands at 1,685p, valuing this Footsie stalwart at £37.5bn. This leaves the shares down a whopping 58.3% from their 2021 high. What’s more, this widely held stock is down 30.6% over one year and 42.1% over five years,
However, these hefty losses will have been partly offset by Diageo’s increasingly generous cash dividends. With the share price in the doldrums, the dividend yield has risen to 4.7% a year — fairly high among FTSE 100 companies.
Inside move
Disclosure: my wife and I bought into this global Goliath of alcoholic beverages in January 2024, paying 2,806.6p a share for our holding. I sincerely wish we hadn’t bothered. It’s been a rough two years, generating a paper loss of two-fifths (-40%) for our family portfolio (excluding dividends). That’s our worst investment by far in at least 15 years. Urgh.
That said, three things give me hope that this troubled tanker might finally turn around. First, new CEO Sir Dave Lewis started work on 1 January. Sir Dave is a turnaround specialist known for delivering positive changes at big British businesses.
Second, the directors are working on a new strategy aimed at boosting sales and margins in flagging markets and restocking its extensive cupboard of brands. I expect a ‘fix, close or sell’ plan to be announced with the six-month interim results on 25 February.
Third, Dayalan Nayager (President, Europe and Chief Commercial Officer since mid-2024), who sits on Diageo’s executive committee, bought 28,960 shares at 1,604p each on 30 December. That’s a personal outlay of £464,518 on top of any shares Nayager acquires through the group’s various incentive schemes.
In my long experience, there is only one reason why insiders buy company stock. Obviously, it’s because they think it is undervalued. Nayager’s new stake is already up 5% since he bought it — and why would he knowingly back a dead horse?
Happy new year?
It remains to be seen whether Diageo enjoyed a good festive season or if sales keep sliding. Personally, I’d like to see group sales growth restored, higher margins, and lower costs, thus boosting profits and free cash flow. Also, selling off some non-core and top-shelf brands could help to reduce Diageo’s hefty net debt.
Finally, this company has shrunk so much that it could be a target for the biggest sharks looking to take British businesses private. After all, there are no bad assets, only bad prices, right? I sincerely hope so!
