Diageo: New 5-Year Low & Q3 FY25 Update (Quick Note)

Company Update (DGE LN) (Buy): Sales grew 5.9% organically, while forward P/E is ~16x and the Dividend Yield is 4.0%.

We review our Buy rating on Diageo after shares have fallen by 11.3% in the past month, including by 4.2% last week; at 1,932p, they are just ~1% above the 1,908p new 5-year low that was reached on April 7:

Diageo Share Price (Last 5 Years)

Source: Google Finance (08-Jun-25).

We originally initiated our Buy rating on Diageo in July 2019, placed it into our “Select 15” model portfolio at the start of 2023, and added to it over time until it became a large holding as of September 2024. We have been wrong so far, with Diageo showing a 26% loss (in dollars; 31% in pounds) in the model portfolio (and a similar loss in real life).

The most impactful news for Diageo shares in the past month was Brown-Forman’s release of their Q4 FY25 results last Thursday (June 5); Diageo shares fell 4.2% that day. The U.K. Pound has also gained 2.2% against the U.S. Dollar in the past month, a headwind for Diageo’s pound-denominated shares in London. Diageo had released their Q3 FY25 (January-March) update on May 19, but its shares moved by less than 1% on each of the subsequent 3 days.

We believe the Spirits industry will return to growth over time. Brown-Forman’s results did not contradict this view (as we argued last week), and Diageo had solid shipment growth in Q3 FY25 after distributors bought ahead to avoid tariffs. An undemanding valuation, including a ~16x forward P/E and a 4.0% Dividend Yield, should help limit any downside.

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