Finsbury Growth and Income fund manager Nick Train
Nick Train has doubled-down on his support for Diageo, which saw shares plummet last month after the drinks giant blindsided investors with a profit warning.
The popular stockpicker, who holds Diageo within his £1.8billion Finsbury Growth and Income fund, told investors on Wednesday he had bought more shares in the Johnnie Walker and Guinness owner in the wake of the sell-off.
Diageo shares slumped more than 15 per cent in November after the group warned Latin America and Caribbean revenues, which make up 11 per cent of net sales value, are now expected to decline by more than 20 per cent year-on-year.
Triggered by weaker consumer strength and overstocking in the region, the profit warning has contributed to weaker performance in Train’s Lindsell Train Investment Trust.
The trust has outsized exposure to consumer giants, which are struggling for growth as higher interest rates weigh on demand globally.
And Diageo boss Debra Crew has recently admitted it is difficult to predict when the company could clear up the issues in Latin America.
But Train said on Wednesday that Finsbury Growth and Income has been ‘adding again’ to Diageo shares, which he believes are significantly undervalued following the recent sell off.
Diageo shares are currently trading at 2,818p, down roughly 22 per cent year-to-date and more than 30 per cent short of its all-time peak of 4,036p in December 2021.
This looks cheap to Train, with the shares currently ‘valued at little more than 17x earnings, or an earnings yield of nearly 6 per cent’.
Train backed the group to deliver ‘steady growth’ over the next decade, which is ‘exactly what Diageo has delivered over the 21st century to date’.
He added that volatility is an ‘unavoidable’ part of business in Latin America, where Diageo has grown revenues by around 25 per cent over the last decade to £1.8billion and ‘its peoples love Diageo’s products, particularly whisky’.
Train said: ‘On balance, we do not believe the warning about Latin America invalidates the investment case for Diageo, frustrating though it is.
‘Diageo reveals itself to be a globally diverse business, with attractive and resilient profitability ratios and a credible growth opportunity.
‘Stock market history suggests that businesses offering these qualities deserve to be highly valued, for the melancholy but never to be forgotten reason that most companies do not succeed in delivering such reliable, growing profits.
Finsbury Growth & Income shares are up 1.2 and 3.9 per cent over one and three years respectively, compared to an average one-year return of 3.9 per cent and a three-year return of 22.6 per cent for peers in the UK Equity Income AIC sector.
Trading at a 6.9 per cent discount to net asset value, it has posted a NAV total return of 3.7 per cent over the last year, compared to a peer average of 5.8 per cent.
