Analysis-Diageo's new CEO needs actions, not just words
LONDON (Reuters) -Diageo's new interim CEO Nik Jhangiani has charmed investors with his cool confidence and clear communication, in contrast to his predecessor who struggled to win over the company's shareholders during her short term.
But whoever takes on the full-time leadership of the world's top spirits maker will inherit challenges that will take more than words to address.
Diageo announced Debra Crew was stepping down with immediate effect on Wednesday after just two years leading the company - a period in which its shares fell 44% amid a sector-wide downturn.
Four investors, including one top 20 shareholder, told Reuters that Jhangiani, who joined Diageo as chief financial officer in September, would make a solid permanent CEO of the Johnnie Walker whisky and Don Julio tequila maker.
Still, some of those shareholders cautioned, whoever takes the job permanently must cut Diageo's debt and revive growth at a time when consumers' wallets are stretched and the sector faces tariff hikes in the United States, its biggest market.
At the same time, competition from alcohol alternatives like cannabis drinks is rising, some consumers are cutting back altogether and public health authorities are increasingly raising the alarm about alcohol's health risks.
"We can't just hope for the best here," said Kai Lehmann, senior analyst at Flossbach von Storch, the top 20 shareholder, adding investors had criticised Crew for passivity and that belief in her plans to generate growth had waned.
"The new CEO must immediately set about sharpening the portfolio and divesting categories and brands with no growth potential."
Diageo's fortunes have turned dramatically since Crew's appointment in June 2023 after the sudden death of predecessor Ivan Menezes.
Menezes presided over a period of extraordinary growth for the industry as drinkers splurged on spirits after the COVID-19 pandemic, a trend that would later reverse amid high interest rates and inflation, sending industry sales spiralling.
Decisions made during those high times, including to significantly increase Diageo's debt and set ambitious targets for future growth, complicated life for Crew and for the company. The new CEO inherits these challenges.
Diageo declined to comment.
SALES CHALLENGES
Crew did make some changes during her short tenure, including investing in Diageo's U.S. distribution, and despite the slide, the company's stock has performed relatively well versus peers. Not all investors were unhappy.
But a November 2023 profit warning dented confidence in Crew from the outset, and it never fully recovered, Lehmann and five other investors said.
Jhangiani, in contrast, joined in 2024 as a familiar and trusted figure thanks to his work at Coca-Cola bottlers.
He quickly became the face of Diageo's turnaround, scrapping Menezes' ambitious sales targets and launching a plan to cut costs and sell assets to reduce the company's debt ratio.
"They both said the right things," Chris Beckett, analyst at Diageo investor Quilter Cheviot said of Crew and Jhangiani. "But...it was always at the back of the mind, who was really running the company?"
Whoever takes over, Diageo must communicate a convincing plan for growth, Beckett, Lehmann and two other investors said.
DEBT INCREASE
Diageo, at least, is a company "with a problem, not a crisis", said Steve Clayton, portfolio manager at Hargreaves Lansdown, adding that it remained financially strong.
Leverage has, however, crept above Diageo's target range to stand at 3.1 times operating profit at the end of 2024.
Diageo's debts have doubled since 2017, driven in large part by $13 billion worth of share buybacks over the period, according to Fintan Ryan, analyst at Goodbody.
That included extensive buybacks during the industry's boom in 2022 and in 2023, when shares were on average 40% more expensive than they are currently, Lehmann said.
The strategy left Diageo looking to sell assets in a tough environment when it might get a worse price, said Michael Laskin, a senior fixed income analyst at Diageo shareholder Columbia Threadneedle.
Laskin said Diageo failed to see the sharp drop in consumption coming and instead built up debts that now exacerbate its problems.
These decisions were, in hindsight, a "lesson in poor capital allocation" that cost investors and makes the CEO's life harder today, Lehmann said.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
16 minutes ago
- Yahoo
Lenders hold mortgage deals as Bank of England cuts interest rates
Lenders have mostly decided to keep rates unchanged as the Bank of England (BoE) cut interest rates. Still, first-time buyers can get a deal as low as 3.77%, depending on the size of their deposit, with Natwest (NWG.L) keeping its two-year fixed deal. The average rate for a two-year fixed mortgage stands at 4.70% this week, while five-year fixed deals average 4.97%, according to data from Uswitch. The Bank of England has cut interest rates to 4%, which should provide some relief to homeowners who could see mortgage payments go down. The primary inflation measure, the Consumer Price Index (CPI), stood at 3.6% in the 12 months to June, well above the BoE's 2% target. Chancellor Rachel Reeves announced plans under which renters who have a good track record of monthly payments will be able to use this to prove to lenders how much they can afford to borrow, sometimes without the need for a deposit. Homeowners are set to benefit from simplified mortgage rules, as the Financial Conduct Authority (FCA) confirms changes designed to make remortgaging or reducing loan terms easier. The BoE also loosened its lending rules. Until now, just under 10% of new mortgages issued were for valuations exceeding 4.5 times a borrower's income. That is set to rise to 15% across the industry, with some building societies and banks able to offer an even higher number of new mortgages at that level. BoE estimates suggest 36,000 extra mortgages with higher loan-to-income ratios could be handed out each year as a result of the change. Read more: Bank of England cuts interest rate to two-year low According to the latest figures from Rightmove (RMV.L), the average two-year fixed rate at 80% loan-to-value (LTV) has come down from 5.21% to 4.38% over the last year. Over the same period, the average five-year fixed rate at 80% LTV has fallen from 4.91% to 4.52%. The most expensive cities for the first-time buyers were London, St Albans and Cambridge, which have average asking prices of £497,295, £387,882 and £361,709 respectively. Matt Smith, Rightmove's mortgage expert said: 'As expected we now have the third Bank Rate cut of the year, with the Bank continuing along its forecast trajectory. Mortgage lenders have had a bit of room to reduce rates over the last week, owing to the ongoing developments around global tariffs. "However, we expect that lenders will use the headline of today's cut as the catalyst to reduce their rates a little further, though lender competition remains fierce and we don't expect major rate drops. "Lenders have been competing for business in a market which has the largest supply of homes for sale in a decade. A combination of rate cuts and changes to buyer affordability criteria are helping many home-movers to responsibly borrow more towards the home that they want. Read more: First-time buyers on £30k salary now able to apply for mortgage "The market expects there will be one more Bank Rate cut before the end of the year, with an outside chance of two. Any further cuts would likely see this cycle repeat again - with lenders using it as an opportunity to reduce rates a little more. It bodes well for the second half of this year, with further mortgage rate reductions and stable prices likely to encourage more activity." Nationwide (NBS.L), Britain's biggest building society, has also cut the salary requirements for first-time buyers from £35,000 to £30,000, in a move it hopes will enable 10,000 more people to become homeowners. Amanda Bryden, head of mortgages at Halifax, said: "Challenges remain for those looking to move up or onto the property ladder. But with mortgage rates continuing to ease and wages still rising, the picture on affordability is gradually improving. "Combined with the more flexible affordability assessments now in place, the result is a housing market that continues to show resilience, with activity levels holding up well. "We expect house prices to follow a steady path of modest gains through the rest of the year." This week, only HSBC (HSBA.L) cut its mortgage rates, with all other major lenders keeping deals untouched as most had already adjusted to what was a widely expected decision by the BoE to cut interest rates. HSBC mortgage deals HSBC (HSBA.L) has a 3.94% rate for a five-year deal, unchanged from last week. For those with a Premier Standard account with the lender, this rate is 3.91%. Looking at the two-year options, the lowest rate is 3.78% with a £999 fee, a cut from the previous 3.82%. Both cases assume a 60% LTV mortgage, meaning buyers need to have at least 40% for a deposit. HSBC offers 95% LTV deals, meaning you only need to save for a 5% deposit. However, the rates are much higher, with a two-year fix at 4.94% or 4.79% for a five-year fix. This is because their financial situation and deposit size determine the rate someone can get. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky. NatWest mortgage deals NatWest's (NWG.L) five-year deal is 3.88% with a £1,495 fee, unchanged from the previous week. Read more: UK house prices rise by over £1,000 in July The cheapest two-year fixed deal is 3.77%, again the same as before. In both cases, you'll need at least a 40% deposit to qualify for the rates. Santander mortgage deals At Santander (BNC.L), a five-year fix comes in at 4.01% for first-time buyers, which is unchanged from the previous week. It has a £999 fee, assuming a 40% deposit. For a two-year deal, customers can secure a 3.84% offer, with the same £999 fee, again the same as before. However, the lender increased rates on some 85%-95% LTV five-year fixed rates by up to 0.12% Barclays mortgage deals Barclays (BARC.L) five-year fix this week stands at 3.99%, same as before. The lowest for two-year mortgage deals used to be 3.76% or 3.75% if you had a Premier exclusive account but that offer now comes in at 3.84% (3.83% for Premier clients). Barclays recently launched a mortgage proposition to help new and existing customers access larger loans when purchasing a home. The initiative, known as Mortgage Boost, enables family members or friends to effectively "boost" the amount that can be borrowed toward a property without needing to lend or gift money directly or provide a larger deposit. Under the scheme, a borrower's eligibility for a mortgage can increase significantly by including a family member or friend on the application. For example, an individual with a £37,500 annual income and a £30,000 deposit might traditionally be able to borrow up to £168,375, enabling them to purchase a home priced at around £198,375. However, with Mortgage Boost, the total borrowing potential can rise substantially if a second person, such as a parent, joins the application. In this case, if the second applicant also earns £37,500 a year, the combined income could push the borrowing limit to £270,000, enabling the buyer to afford a home worth up to £300,000. Nationwide mortgage deals Nationwide's (NBS.L) lowest mortgage rate for first-time buyers is 4.14% for a five-year fix. First-time buyers are looking at 3.94% for a two-year fix, unchanged from before. Both deals require a 40% deposit and come with a £1,499 fee. However, mortgage customers who are on Nationwide's Standard Mortgage Rate (SMR) will see a decrease of 0.25%. The new SMR of 6.74% will come into effect on 1 September 2025. Rates on tracker mortgages held by existing Nationwide customers automatically decrease when Bank Rate is cut, so these will decrease to reflect the Bank Rate change from 1 September 2025. Carlo Pileggi, Nationwide's senior manager of mortgages, said: 'As the country's second largest lender, we always strive to support all parts of the market with competitive rates. This latest round of cuts across our range move even more of our rates below 4% and should put Nationwide front of mind of first-time buyers, those moving on to their next home and those looking for a new mortgage deal.' Eligible first-time buyers can apply for a mortgage with a £30,000 salary, down from £35,000, and joint applicants with a £50,000 combined salary, down from £55,000. This is expected to support an additional 10,000 first-time buyers each year. Nationwide, which lent to more first-time buyers in 2024 than any other lender, has confirmed it has applied to the Prudential Regulation Authority to increase its high loan-to-income lending capacity. The vast majority of Nationwide's high LTI lending is done through its Helping Hand, which allows eligible first-time buyers to borrow up to six times income. This enables borrowing of up to 33% more than standard lending. Helping Hand has helped around 60,000 first-time buyers since launching in 2021. Read more: How you can still make money from flipping property The lender has also adjusted its mortgage affordability calculation by reducing stress rates by 0.75 and 1.25 percentage points, helping applicants borrow more, whether buying a first home, moving, or remortgaging. Applicants can borrow, on average, £28,000 more; however, in some remortgage cases, customers could borrow up to £42,600 more. Nationwide also reduced its standard stress rate and the rate applied to eligible first-time buyers and home movers fixing their deal for at least five years. Halifax mortgage deals Halifax, the UK's biggest mortgage lender, offers a five-year rate of 3.94% (also 60% LTV), same as before. The lender, owned by Lloyds (LLOY.L), offers a two-year fixed rate deal at 3.79%, with a £999 fee for first-time buyers, again unchanged. It also offers a 10-year deal with a mortgage rate of 4.78%. Halifax has enhanced its five-year fixed mortgage products by increasing borrowing capacity. This improvement allows borrowers to access up to £38,000 more, enabling them to secure larger mortgages based on individual incomes. Rachel Springall, finance expert at Moneyfacts, said: "The flourishing choice of low-deposit mortgages will no doubt be welcomed by borrowers looking to remortgage or are a first-time buyer. "The government has been clear that it wants lenders to do more to boost UK growth, and so a rise in product availability for aspiring homeowners is a healthy step in the right direction." Cheapest mortgage deal on the market NatWest has some of the lowest rates on the market, with a two-year fix coming in at 3.77%. The same lender also takes the crown for a five-year fix with its 3.88% deal. However both require a hefty 40% deposit. The average UK house price was £298,237 in July, according to the latest figures from Halifax, so a 40% deposit equals about £120,000. A growing number of homeowners in the UK are opting for 35-year or longer mortgage terms, with a significant rise in older borrowers stretching their repayment periods well into their 70s. Read more: New renters in London pay record-breaking £2,201 per month Lender April Mortgages offers buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage. As part of the independent Dutch asset manager DMFCO, the company offers interest rates starting at 5.20% and an application fee of £195. Skipton Building Society has also said it would allow first-time buyers to borrow up to 5.5 times their income to help more borrowers get on the housing ladder. Leeds Building Society is increasing the maximum amount that first-time buyers can potentially borrow as a multiple of their earnings with the launch of a new mortgage range. Aspiring homeowners with a minimum household income of £40,000 may now be able to borrow up to 5.5 times their earnings. Mortgage holders and borrowers have faced record-high repayments in recent years, as the Bank of England's base rate has been passed on by banks and building societies. According to UK Finance, 1.3 million fixed-mortgage deals are set to end in 2025. Many homeowners will hope the Bank of England acts quickly to cut rates more aggressively. At the same time, savers will likely root for rates to remain at or near their current levels. Read more: How school fees can affect your mortgage borrowing The pros and cons of getting a mortgage into your 70s Pros and cons of lifetime ISAsSign in to access your portfolio
Yahoo
an hour ago
- Yahoo
Joby Aviation (JOBY) Reaches Milestone in FAA Certification with First Conforming Aircraft
Joby Aviation recently announced its preparation for the final assembly of its first conforming aircraft for the Type Inspection Authorization (TIA) flight tests, a crucial milestone aligning with FAA standards. This development underscores the company's significant progress towards commercialization and may have contributed to the impressive 185% share price increase over the last quarter. The market's general upward trend during this period would have supported such a remarkable rise. Joby's advances in product development, strategic alliances, and facility expansion likely added weight to its price movement as investors remain optimistic about its future. We've identified 5 possible red flags with Joby Aviation (at least 1 which is a bit concerning) and understanding the impact should be part of your investment process. AI is about to change healthcare. These 26 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10b in market cap - there's still time to get in early. Over the past year, Joby Aviation's shares experienced an impressive total return of 285.54%. This exceptional performance stands in stark contrast to the US market's 22.4% return over the same period and the US Airlines industry's 82.1% return, highlighting Joby's substantial gain relative to its peers and the broader market. The developments mentioned in the introduction, particularly Joby's advancements in conforming aircraft assembly and strategic partnerships, could significantly influence revenue and earnings forecasts. Despite a current revenue of just US$111,000 and being forecast to remain unprofitable over the next three years, these milestones may lay the groundwork for future growth. However, the high share price, presently at US$18.93, has surpassed analysts' consensus price target of US$8.75, indicating a significant premium compared to expectations. This disparity suggests heightened market optimism, which investors should consider when evaluating Joby's long-term prospects. Our expertly prepared valuation report Joby Aviation implies its share price may be too high. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include JOBY. This article was originally published by Simply Wall St. Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@
Yahoo
an hour ago
- Yahoo
Gold is Back Near a Record High. Here's Why the Price of the Precious Metal is Surging.
Key Takeaways The price of gold has returned to near all-time highs this week after dipping in late July. Gold has surged since the release last Friday of U.S. employment data that showed the labor market is considerably weaker than previously estimated. Expectations that the Federal Reserve will cut interest rates in September have risen considerably following the July jobs report, helping to underpin demand for the precious about the direction of the U.S. economy again has catapulted the price of gold to near all-time highs. Increasing expectations that the Federal Reserve will cut interest rates in September may keep it there. Spot gold reached a high of $3,418.14 per troy ounce Thursday, within striking distance of its June 13 all-time high of $3,448.50. The price of gold has gained more than 3% since hitting a one-month low of $3,311.80 a week ago, just before the release of employment data that showed the U.S. labor market to be far weaker than previously thought. Seeking Safety The latest rally falls in line with gold's reputation as a safe haven for investors in times of economic uncertainty. The jobs report last Friday showed that employers hired fewer workers in July than economists had estimated, while the unemployment rate ticked higher to 4.2%. Even more worrisome, employment numbers for the previous two months were revised dramatically lower. Weakening labor market conditions could portend lower economic growth, something investors have been worried about amid uncertainty about the impact that tariffs will have. Concerns about the economic outlook have helped fuel gold's 30% price rise year-to-date. Fed Rate-Cut Expectations Rise The weak jobs numbers have boosted market expectations that the Fed's policy committee will cut the benchmark fed funds rate when it meets in September. After trimming the rate a full percentage point in late 2024, the Fed has refrained from cutting rates this year, with officials saying they need more data showing how tariffs affect inflation before adjusting policy. (The Fed has a dual mandate to promote high levels of employment and to maintain price stability.) While the Fed has stood pat on rates, the European Central Bank has cut interest rates eight times since June 2024. The ECB rate cuts have bolstered the value of gold globally. Because gold does not offer a regular yield payment to investors, it tends to perform better when competing investments, such as bonds, offer lower interest payments. That's why Fed rate cuts, were they to occur, could further underpin demand for gold. Prior to the jobs report on Aug. 1, just 37% of investors expected a September rate cut, based on the fed funds futures market. Now, more than 90% expect a quarter-point cut in the Fed's benchmark target rate to 4%-4.25%, as well as additional cuts before the end of 2025. Read the original article on Investopedia Sign in to access your portfolio
