Nick Train: why I’m raising a glass to Diageo and the future of Rightmove

Let's just say one thing. In 2019, before COVID, this business had annual revenues of 17 billion. Today it has revenues of 20 billion. I think last year its sales were down 200 million on a 20 billion revenue line. So you're right, the share price has more than halved, but actually the business is a significantly bigger business today than it was pre-COVID. And the difficulties that you're talking about — and I'm not denying them — but to date, at least, all that's happened is that Diageo's revenues have gone sideways. Who knows what the revenues will be this year, but I think the median forecast is just a tad under 20 billion. So the share price has more than halved and yet revenues, maybe at their worst, are going to be down three or four percent. I know earnings are going to be down more than that, but it's not like the business is imploding. It really isn't imploding. We were talking about Guinness beforehand; that's booming. Some of its brands are doing well.

But again, listen, I fully acknowledge the risks of sounding complacent here. I absolutely get it. And in the end, who knows? But why haven't we sold Diageo? Well, because it's one of the very rare UK companies — and that's what I do, I have to pick UK companies — it's one of the very rare UK companies that is self-evidently the best in the world at what it does. It's the biggest, it has the best brands, it's the best diversified by product and by geography. It's an exceptional business, Diageo.

And I think even more to the point, I mentioned investors focusing on the short term, and I'm not saying it's not important, but so few corporate assets — so few of them — can you confidently predict will still be there in 25 years' time. Let's say I'm still running Finsbury in 25 years' time — that'd be a nice idea. I promise you in 25 years' time Guinness, Johnnie Walker, Tanqueray, Baileys, Hennessy, those brands will still be being enjoyed around the world, probably in higher volumes than today, assuming the world economy grows. And that's really, really rare. It just is. When you look back at financial and industrial history, most companies don't survive and prosper for really long stretches of time. So in theory it ought to be very, very valuable indeed. But I agree the thesis is being tested today.

The truth is that trading for Diageo clearly remains difficult. Right now it's still difficult. We can see the statistics coming out of the US spirits market; that market is shrinking, maybe for cyclical reasons, maybe there's some long-term effects here as well. And I can understand why investors are reluctant to start bidding up Diageo shares until at least that US market begins to stabilize, and who knows when that will be. There's also the recognition that — I agree, Sir Dave Lewis has a great track record and a great track record in businesses that have relevance for Diageo. But what's he going to do in his first six months? Maybe that's when you take the maximum amount of pain, and maybe the smart money would be to buy when he announces the big cost cutting or the big hit to — who knows? I don't know that. But I can understand people wanting to try and time the recovery.

But I know it's sort of boilerplate PR, but I'll just quote what Sir Dave Lewis said when he took this job on. He said, you know, this is one of the world's great consumer companies with great brands and, in the long term, great opportunities. And actually we've spoken to him and we know that he's sincere in that appreciation of the strength of the brands and the opportunities. At the moment no one believes it. Is it still being decided whether Diageo's problems are of its own making, or is it simply that the environment's changed and the company hasn't adapted or hasn't been creative enough with its marketing, for example? He's noted that in the United States, which is where people are most concerned, so-called Gen Z is the first generation in US history that is drinking more spirits than beer and wine. That hasn't happened before.