Insider: drinks boss orders huge round of shares

31st January 2022 07:56

by Graeme Evans from interactive investor

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A top businessman rushed to buy shares in this FTSE 100 company after results beat expectations. Bosses at a couple of mid-caps also think their stock is going cheap.

Diageo (LSE:DGE) chairman Javier Ferrán has loaded up on shares in a £915,000 purchase made hours after the drinks giant revealed better-than-expected half-year results.

The former Bacardi boss, who is paid £650,000 year in his role leading the Diageo board, bought 25,000 shares at a price of 3,665p.

That's 9% cheaper than Diageo's starting point for 2022, even though Thursday's results from the Smirnoff, Guinness and Johnnie Walker maker featured a trademark 5% dividend rise and acceleration in a £4.5 billion share buyback programme.

A warning from chief executive Ivan Menezes on short-term volatility caused by supply chain constraints and cost inflation held back the shares as they closed the week at 3,697.5p.

Menezes remains upbeat, however, as he stuck by medium-term sales guidance. Organic net sales for the six months to 31 December jumped by a larger-than-expected 20% and this led to a rise in operating profit of 22.5% to £2.7 billion, despite a surge in marketing spend.

Bank of America noted last week that Diageo's valuation had now pulled back to attractive levels, partly due to a de-rating for stocks across the consumer staples sector.

The bank's analysts raised their earnings per share target by 2% but introduced a slightly lower target price of 4,450p to accompany their ongoing “buy” recommendation.

They said the firm's diverse geographic and product category exposure was key: “We think Diageo is well placed to continue to outperform, even in a slightly more uncertain environment.”

Deutsche Bank, which has a target rice of 4,650p, praised Diageo's trading performance in Europe, Africa and Latin America but said North America and Asia were below consensus.

Overall, the performance provided another reminder why Diageo is a staple of many portfolios.

This includes for Lindsell Train Investment Trust (LSE:LTI), which has 7% of its net asset value invested in the drinks giant. Writing last week, fund manager Nick Train said December had shown some encouraging signs for Diageo and several other of his long-standing holdings.

He added: “The future for premium spirits, premium beer and chocolate seems bright to us and the long-term share price charts of Diageo, Heineken NV (EURONEXT:HEIA) and Mondelez (NASDAQ:MDLZ) suggest that continued business growth could indeed drive their share prices higher.”

Diageo is in the process of returning £4.5 billion to shareholders through a buyback that it extended for two years due to Covid-19. The company now intends to complete the programme by the end of 2023 rather than 2024 as previously thought.

It will also use strong cash flow generation to boost investment in long-term growth, including through a 10-year sustainability plan.

Ferrán's annual salary was increased by £50,000 to £650,000 in July, the first time it has changed since his appointment in early 2017.

A proportion of his annual fee is set aside for the monthly purchase of Diageo shares, which have to be retained until he retires from the company or ceases to be a director. Ferrán is also chairman of British Airways owner International Consolidated Airlines Group.

Buying on weakness at these mid-caps

The bosses of FTSE 250-listed Crest Nicholson (LSE:CRST) and cyber resilience firm NCC Group (LSE:NCC) have topped up their holdings after share price weakness at the start of 2022.

Midlands and south of England-focused housebuilder Crest Nicholson said on Friday that chief executive Peter Truscott spent £92,400 on shares at a purchase price of 310p.

Crest started the year at 372p, but the outlook for inflation and rising borrowing costs has depressed valuations across the housebuilding sector so far in 2022.

Truscott made his purchase a week after posting annual results, when he said changes made by the company in the past two years were now flowing through into an improved financial performance and cash generation.

He added: “Accordingly, we are now able to plan with confidence, and have the necessary balance sheet resources, for a growth strategy that will see the group expand into new geographies.”

His confidence was backed up by a full-year dividend of 9.5p a share for payment on 8 April. Truscott, who was appointed in September 2019 after previously running Galliford Try, is required to have a shareholding equivalent to 200% of his salary.

NCC's Adam Palser bought shares worth £54,000 on Thursday at a price of 216p, which compares with 233.5p at the start of the year. The stock finished the week at 200.5p as weakness towards technology-focused stocks continued.

Palser made his purchase after posting interim results in which he backed revenues to accelerate in the second half of the year as NCC's markets recover from the pandemic.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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