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On the Berkshire board I made a wild speculation that one sector Mr Buffett might deploy capital into, at some point, is the big international liquor companies.

They are generally extremely good bets over the very long haul, but down a huge amount because of their highly visible exposure to tariffs. (and worries that the world will stop drinking).

Diago DGE:LSE, 34% off its high. Not doing great lately, in a number of different ways. 3.9% div.
Campari CPR:MIL, 49% off its high. 1.2% yield. Most expensive on trailing P/E at 30.8.
Pernod Ricard RI:PAR, 46% off its high Least exposed of these four to US tariffs. 5.3% div.
Remy Cointreau RCO:PAR, 62% off its high. Most exposed of these four to US tariffs. 4.6% div. Cheapest on trailing P/E at 13.5.

Here's a recently published estimate of their hits to earnings with 25% tariffs from Canada and 10% form the EU and UK. (depending on what time it is, that's not far off the current situation, though EU is at 20%)
Diageo, 8% hit to pre-tariff earnings
Campari, 8% hit to pre-tariff earnings
Pernod, 3% hit to pre-tariff earnings
Remy, 19% hit to pre-tariff earnings

I suspect a slate of all four purchased during this bear market will give satisfactory returns in the years to come.

Jim
[no position]

Just an update on the alcohol thesis, which is that alcohol consumption may fall but it isn't going to disappear.

The four stocks mentioned (Diageo listed in London, Campario in Milan, and Pernod and Remy listed in Paris) are up an average of 6.2% in their own currencies, after falling below where I first mentioned them. Quite a bit more measured in US dollars that have shrunk lately.

Campari does not have the immediate attraction of the others: no trailing earnings, and yield 1.1%. That doesn't mean it's a bad company, just sayin'.
The others have trailing earnings yields averaging 5.38% equating to an average P/E of 18.6, average dividend yield 4.58%.
Considering that this is a sector that has been very weak and almost given up for dead, those aren't actually terrible numbers.

Any business wanting to stick around for the long haul needs younger folk to become their customers. So, an omen that they might not go bust:
Global volumes may have fallen 2% last year, but a recent study shows that the fraction of adults who have consumed alcohol in the past six months is up among Gen X, Gen Y, and Gen Z compared to two years ago, and down a hair only among boomers. (many of whom are getting age-related leanings towards temperance!)



An article in the FT
https://www.ft.com/content/1ae55e45-64a6-463a-b04b...

Gen Z acquires taste for drinking as cost of living pressures ease
Survey shows drop in abstinence among young adults as drinks industry battles perception of structural decline

"An IWSR survey of more than 26,000 people across the 15 largest alcoholic drinks markets found 73 per cent of Gen Z respondents — people of legal drinking age to 27 — had consumed alcohol in the previous six months, compared with 66 per cent two years ago.
That was the biggest increase of any generation, according to IWSR, a market researcher for the global beverage industry.
Meanwhile, 72 per cent of baby boomers — people aged 60 and over — said they had drunk alcohol over the same time period, compared with 73 per cent two years ago, said IWSR, which also found overall alcohol consumption was still moderating across generations.
...
The share of Gen X (those aged between 44 and 59) that said they had drunk alcohol in the last half year rose from 77 per cent in 2023 to 79 per cent this year. The figures for millennials (28 to 43) rose from 79 per cent to 83 per cent. Six per cent of boomers said they were actively drinking more, compared with 29 per cent of Gen Z respondents."

Jim

Doing better than my sausage roll pick then…

Doing better than my sausage roll pick then…

Ooof, that's not the shape you want to see on a graph. Unless you want another bite.

The "financial press" suggests the 15% one-day drop in Gregg's stock is merely because they think this period's earnings might be dented by hot weather?? If true, that's a bit short sighted.

As it is now back to prices they first hit in Feb 2019 and last touched in late 2020, it does seem a bit cheap, so I'm thinking I might join you. My main concern is the overwhelming focus on rapid expansion. I don't quite understand why, with sales up 63% in three years comparing 2024 to 2021, profits were up only 30% in the same three year stretch. Very superficially that suggests declining profitability on the incremental business. Is there a more subtle explanation for the falling net margins that I'm missing?

Earnings estimates for this year are lower than the 2024 figure, and so are estimates for 2026 (by a hair), so "consensus" is that they are completely ex-growth from a profit point of view, a cash cow. On the lighter side, that ex-growth earnings yield is 8.2%, considerably better than gilts. If we see 10% I'm in : )

Dips are normal. Or so I tell myself. DG spent the entire last year a fair bit below where I pumped it almost two years ago.
www.mungofitch.com

Jim

I would need to look again properly but can vaguely recall a few factors:

Over the last few years there has been profitability hit from rising input costs that were not fully passed onto customers. They are very sensitive to raising prices. One of their core strategies is low prices. I do think that is true and a genuine competitive advantage along side large investment in production and distribution facilities. However, it does also demonstrate that it does not have a degree of pricing power that we might prefer. That said, it’s no different to McDonald’s but it’s not KO.

The above is one factor. There were a couple of other fairly large non recurring line items in the P&L like an insurance claim from COVID business interruption. I recall exceptional gain on the sale of supply chain assets. Those things may be making it look worse than expected. I recall being content they were making progress on profits but of course your point is correctly pointing out that they are adding new shops, so they should be growing profits.

It has been a fairly tough time for for a business like Greggs with food inflation and energy costs. Increases in minimum wages was another challenge.

From April 2025 the new national insurance increases will hit them particularly hard as a large employer.

You will no doubt look into historical P&Ls to get a better feel for what is happening. One margin improvement force will be economies of scale from the new distribution centre.

The share price took a significant 15% dive and bounced back a little today. Due to company warning on earnings due to extreme temperatures in June. I am hoping that is temporary but wonder if Mr Market is wondering if management are exaggerating as they also complained about cold weather in winter. Certainly my best guess is that the market it not impressed with the softening earnings. With the main concerns being cost pressures.

I remain optimistic as it’s not expensive and I also know they are expanding but still able to pay out a large portion of earnings in dividends and special dividends. I don’t think they are over investing in expansion capex. They are careful with that. But hey, it’s not Microsoft at 10 times earnings. My instinct is they will have flat earnings this year but eventually start to pass on cost pressures and a with a expansion and hopefully no further fiscal or makro pain, get back to modest growth and continue healthy dividends…

As I say this is from memory and a pretty shaky amateur understanding.

As I say this is from memory and a pretty shaky amateur understanding.

Don't sell yourself short. Hey, that's far more insight than I had.

Jim

I've noticed recently that many of the supermarkets in the UK, (including in their smaller metro stores) are running very aggressive lunchtime meal deal campaigns for their Clubcard holders. Eg yesterday I purchased items that would be £7.20 separately, as apart of a Clubcard deal was only £3.60!. That was a luxury chicken wrap large smoothie and side dish. Hard to best and may be taking market share.

(Also a user of Greggs...) for me Greggs is preferable if I want a coffee as part of the deal) not so in the summer tbh.

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