personal finance

Diageo remains in play as Saller departs

Trade publication The Drinks Business recently reported that 31Dover, one of the UK’s largest online liquor distributors, saw a 400 per cent spike in sales after the lockdown measures were introduced last month. Indeed, I recall walking into my local Co-op on the day after Boris Johnson closed all the pubs and noticed that the wine and beer shelves had been virtually stripped bare.

People like a drink, particularly when they’re under stress. And there can be few companies better placed to meet that need than Diageo. But it will have to do without its long-serving chief marketing officer, Syl Saller, who is to retire after 20 years. To help her on her way, she has hived off 5,000 American depositary receipts, garnering $642,577 (£523,022) in the process.

The drinks giant, which numbers Smirnoff, Johnnie Walker and Guinness among its global brands, is donating 2m litres of alcohol in the fight against Covid-19, not for consumption, but for use in hand sanitisers. The move is commendable, although at risk of seeming cynical, it’s also good PR at a time when the business is under pressure through the pub/bars closure and logistical challenges.

Based on previous bear markets, we might reasonably assume another significant down leg is in the offing — it would be unrealistic to think the market has bottomed out. So, with activity in the licensed trade constrained, the group is likely to take a significant hit to earnings and cash flow, though it will be illuminating to learn how off licences fare during the lockdown. It would also be gratifying to learn whether the group is thinking of reassigning any of the £3.38bn in near-term debt obligations.

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It’s no secret that utilities can offer refuge to investors during times of crisis, and the Covid-19 pandemic is no exception. Drax offers an income stream underpinned by government subsidies for its biomass power generation and growth from the hydro and gas assets it acquired from Scottish Power in 2018. The group has yet to update the market on any financial impact from coronavirus, which means there’s no official word on whether the final 9.5p dividend declared for 2019 remains intact. But it’s worth noting that out of the major listed utilities, only Centrica has cut its payout so far, and that’s partly because it is battling its own set of challenges.

Drax does have some vulnerability as an electricity and gas supplier to UK business customers. The lockdown measures have seen more electricity being used at home, but industrial and commercial demand have dropped. Drax’s customer-facing activities are therefore likely to come under pressure. But while they accounted for just under half of group revenue in 2019, this translated to only 4 per cent of adjusted cash profits (Ebitda).

The shares haven’t been immune to the wider market sell-off and are down over two-fifths so far this year. Against this backdrop, some directors have spotted a buying opportunity. This includes chief executive Will Gardiner, who has increased his holding by a third, purchasing 97,500 shares worth a little under £150,000. He has been joined by the chief financial officer, Andy Skelton, who has scooped up 50,824 shares for just shy of £80,000. Three executive committee members have also bought an aggregate 79,705 shares worth a little under £120,000.

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