Diageo market share ambition implies stock party

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A gin cocktail and a glass of whisky sit side by side on a bar in Edinburgh, Scotland, December 14, 2016. REUTERS/Russell Cheyne

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LONDON, Nov 17 (Reuters Breakingviews) - Diageo (DGE.L) is projecting confidence. The Smirnoff maker wants to grow its booze market share to 6% in 2030 from 4% last year. It helps that drinkers are eschewing wine and beer in favour of spirits. The group run by Ivan Menezes is also piling into drinks like tequila, set to grow by 11% annually over the next five years, and China.

Assume the global drinks market grows by 3% a year from researcher IWSR’s 2020 estimate of $1 trillion, and sales could reach $1.4 trillion in 2030. If Diageo hits its 6% target, and keeps around 31% of gross sales after paying distributors and excise duties, then its revenue could be 26 billion pounds in that year. On a multiple of 8 times sales, Diageo’s enterprise value would be 208 billion pounds in 2030, or 139 billion pounds today when discounted using NYU Stern’s 4% cost of capital for the drinks sector. Take off debt, and Diageo’s equity should be worth 127 billion pounds, around 40% more than its current market capitalisation. Yet with competitors like Pernod Ricard (PERP.PA) and Rémy Cointreau (RCOP.PA) also bingeing on expensive drinks, Menezes will have to fight to keep his place at the bar. (By Dasha Afanasieva)

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Editing by Neil Unmack and Oliver Taslic

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