I.n these days the UK and EU representatives are making one last attempt to prevent a so-called no-deal Brexit. So far there has not been much of the apocalyptic mood. The corona pandemic almost completely overshadowed the exit agreement. Only in the past few days has it become increasingly clear with many reports how everyday economic life could look after the one-year transition period for the British from January 1, 2021.
The American investment bank Morgan Stanley is apparently planning to move assets worth billions from Great Britain to Germany. It is following the example of many other financial institutions. This also fits the message that on Monday, according to statements by the financial service provider Moventum, many British people living abroad had their bank connections cut. The British limbo is apparently finally over – with or without a deal.
Such a deal would be very important in order not to unnecessarily burden the British economy in times of a corona-related economic dip. In addition, many investors will be wondering how things will look for previously solid UK stocks from January onwards. One of the most popular securities from the island is Diageo.
While the world’s largest spirits manufacturer should also hope that a no-deal Brexit can be prevented, the company can master such challenges relatively well due to its broad base. Diageo is represented with its more than 200 brands in around 180 countries. The brands include, for example, Smirnoff, Captain Morgan, Tanqueray, Baileys and the British include the Irish Guinness beer. All in all a pretty profitable business.
Popular alcohol brands
The awareness of these brands is a great advantage, especially in difficult economic times. If consumers no longer have too much money, they will orientate themselves even more closely to the brands they are familiar with in the supermarket than in the past. Nevertheless, Diageo is also struggling with the current situation.
The corona restrictions will ensure that the festivities around Christmas and New Year’s Eve cannot go on like in the past. The festive season is a particularly important time for the spirits industry. The crisis in the tourism industry and the major events that are not taking place due to Covid-19 are also of little help.
However, Diageo was last able to notice a recovery compared to spring 2020 and the 2019/20 financial year, which ended at the end of June. Especially in the emerging markets, which are becoming increasingly important for the group. Ultimately, Diageo’s situation is hardly dependent on the situation in Great Britain. Sales are well distributed, with the group making more than 34 percent of its revenues in America and over 20 percent in Asia. For this reason, too, the management assumes that the second half of 2020 should have developed better than the first half of 2020, both in terms of sales and results.
Investors have done well with the stock so far
Investors who have already invested in Diageo in the past ten years have more than doubled their position with the defensive consumer stock. 10,000 euros became more than 23,000 euros – despite a previously weaker Corona year 2020.
After Diageo’s share price rose to a new all-time high of £ 36.33 in September 2019, prices plummeted, slumping 44 percent to £ 20.50 by March of this year. A volatile rally started from this three-year low, during which the prices worked their way back up to the 30 mark by mid-December. The Diageo share is now trading at a distance of twelve percent above the 200-day line, which underpins the clear upward trend.
The only disadvantage for investors may be the price-earnings ratio (P / E). The share currently has a 2021 P / E ratio of 26. In view of a constant dividend yield of more than 2 percent over the past few years, this argument may no longer carry so much weight for one or the other investor. Ultimately, Diageo is one of the British corporations that (almost) doesn’t care how the Brexit chapter comes to an end.