By Chris Bragg

Diageo – 1020p Diageo is perhaps better positioned than most to ride out the current economic turmoil. The company in its current format was created in 1997 following the merger of GrandMet and Guinness. Unsurprisingly, it owns some extremely valuable brands including Smirnoff, Johnnie Walker, Guinness, Baileys, J&B, Captain Morgan, Cuervo and Tanqueray. It is also responsible for Beaulieu Vineyard and Sterling Vineyards wines.

At the time of writing, the company has a market capitalisation of £25.7 billion, making it the 13th most valuable business listed on the London Stock Exchange. This valuation is supported by annual profits which have been in excess of £2 billion in recent years and further growth in profitability is being forecast for the current year, which ends on 30 June 2009. The company has been buying back shares in September above the 1000p level and this should provide support. The modestly growing dividend payments also look very secure and although there are higher yielding shares around, there are probably not many payouts which are as secure as Diageo’s. An important point to note is that the share price is likely to have slipped back to reflect the fact that the ex-dividend date was 10 September. Shareholders will receive a final dividend of 21.1p per share and this will have caused a corresponding fall in the share price.

While UK pub chains have been struggling in recent times, people continue to consume alcohol and the brands owned by Diageo are well established, representing very valuable intellectual property. It should also be remembered that the company trades globally and both the rest of Europe and North America are key markets. This means that there is not too much reliance on any one particular geographical area. Having dipped briefly to 853.5p in July, the shares have recovered strongly. Diageo looks well placed in comparison to other companies both in terms of the uncertain economic outlook and in dealing with cost pressures.

Overall, Diageo may not be the greatest capital growth opportunity ever as the strength of the business is no secret. As a result of this, substantial growth in the share price is unlikely in the near term but the company is a global player and likely to be held in high esteem by investors for the foreseeable future. Under current conditions it looks relatively good value for those wishing to commit money to the market.

l WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek their own professional advice as to the suitability of the investments.