Nick Train buys more Diageo despite profit warning hit to Finsbury Growth & Income

investmentweek.co.uk:

Nick Train said he was sticking with the stock: 'On balance, we do not believe the warning about Latin America invalidates the investment case for Diageo, frustrating though it is."

According to the November factsheet, the trust's net asset value rose 3.4% on a total return basis for the month, and the share price was up 1.5%, while the FTSE All-Share index was up 3%.

Performance would have been better, Train said, had it not been for a profit warning on 10 November from Diageo, which caused an 11% fall in its share price. Finsbury Growth & Income Trust holds 10.4% of its portfolio in the drinks maker.

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Diageo said its Latin American business, which constitutes 11% of group revenues, is down around 20% year-on-year, and that some of the problem is due to oversupply, a costly problem investors thought it had resolved.

Higher for longer interest rates are also taking their toll on Diageo, alongside «the unwinding of the post-Covid binge», with consumers spending less or buying cheaper brands.

However, Train said he was sticking with the stock: «On balance, we do not believe the warning about Latin America invalidates the investment case for Diageo, frustrating though it is.»

The manager is actually adding to his holdings, on confidence that Johnnie Walker, Guinness and Diageo's tequila brands will drive growth at the company «for the foreseeable future», making the drinks maker's shares a good deal.

«At the current share price, these prospects are valued at little more than 17x earnings, or an earnings yield of nearly 6%. On those terms we have been adding again to Diageo shares,» he said.

Investment trust managers bullish