Alirio Sendrea of Invexcel presented his in-depth investment thesis on Diageo (UK: DGE, US: DEO) at European Investing Summit 2025.
Thesis Summary
Diageo is the world’s largest premium spirits company, holding a 5% global value share and a 20% share in the premium-and-above segment. The company is 1.7x larger than its closest international peer and possesses an unparalleled portfolio of over 200 brands, including Johnnie Walker, Tanqueray, and Smirnoff, alongside a 34% stake in Moët Hennessy. The company is highly diversified, selling in 180 countries, and has a portfolio heavily weighted (over 60%) towards the premium-and-above segments, which is almost double the global average.
The spirits sector, as Alirio describes, has faced numerous headwinds that have caused it to go from “sunrise to moonlight,” with many fearing it as the “new tobacco.” These challenges include structural issues like consumer moderation and health consciousness (including GLP-1s) and changing Gen Z habits, as well as circumstantial issues like macro pressures on disposable income, inventory destocking after a post-COVID boom, and new tariffs. These factors led to the first US volume decrease in 30 years in 2023, causing valuations to collapse.
Alirio’s thesis argues this pessimism is misplaced, viewing the macro and inventory issues as transitory. He contends the structural shifts are manageable and create opportunities for “drinking less but better,” which favors Diageo’s premium portfolio. The company benefits from formidable moats, including immense scale, which provides bargaining power and a virtuous cycle of reinvestment. Other moats include the high barrier to entry from “aging,” which requires deep pockets to fund maturing inventory, and powerful brands that provide pricing power.
Diageo is leaning into these strengths, increasing its marketing (A&P) spend to 18% of sales while peers pull back, and growing its maturing inventory to drive future premium sales. Financially, Diageo leads its peers with stable operating margins, a higher ROIC, and superior cash conversion (69% EBITDA to CFO vs. 61% for peers). Alirio highlights that the company is prioritizing organic growth, funded by its strong FCF, and is also embarking on an efficiency plan. While leverage (Net Debt/EBITDA) is at the high end of its 2.5-3.0x target range, he views it as manageable and notes potential upside optionality not included in his valuation, such as portfolio restructuring.
Alirio’s valuation starts from a conservative “no-growth” top-line scenario and a normalized 29% operating margin. He values the Moët Hennessy stake at $7.1 billion using an 18x P/E multiple. His target price is derived from an average of three methods: an EV/EBIT (Market) multiple of 17.4x, an EV/EBIT (Transactions) multiple of 20.4x, and a P/FCF multiple of 18x. This methodology yields a target price of 28-29 pounds per share. Compared to a recent price of 1,750p, Alirio believes this offers a decent margin of safety for a quality, moaty business whose long-term profile is being blurred by short-term noise.
Disclaimer
European Investing Summit 2025 was held from October 28 to November 3, 2025. The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
Slides
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