Well, I can’t say this was on my 2026 bingo card – on Thursday, 30 April, Diageo (LSE: DGE) shares got a 4% bump (equivalent to over £1bn in market capitalisation) from one of the unlikeliest of sources: the President of the USA.
The news has come at a welcome time for the beleaguered drinks manufacturer. The share price has fallen 55% in the last five years. This has led many to wonder (including me) whether the approval from a certain American potentate could kickstart a resurgence for the owner of Guinness, Johnnie Walker and Smirnoff.
Big news
First off, what was the news? The US is going to jettison all tariffs on Scotch whisky following the visit of King Charles III. It seems Mr Trump was won over by the King’s jokes about his predecessors trying to burn down the White House in 1814 and how if it weren’t for ‘us’ then you’d all be speaking French!
Or as Trump himself wrote on Truth Social in typically inimitable fashion: “The King and Queen got me to do something nobody else was able to do, without hardly even asking!”
Diageo has around 30% market share for Scotch whisky in the US, one of its biggest markets. So this has come at a particularly good time as one of the causes for concern for the FTSE 100 drinks titan was weakening demand across the pond.
The tariffs – at one point looking like they would be as high as 27.5% on all goods – were part of the reason for the massive ongoing fall in the Diageo share price. So the removal of the current 10% levy on whisky is welcome news indeed.
The 4% increase in share price on the day of the news was a pretty big move – a sign the stock could be heading in the right direction. Although there’s plenty more to consider.
A buy?
Welcome as the news is, the ongoing ‘tariff wars’ are only one part of the equation here. The bigger concern is one of declining consumption, particularly in key markets such as the US (tariffs or not) and the fall in sales of white spirits in China. The greatest worry is that this is the shape of things to come. And of course, the removal of tariffs could be followed up by new ones given Trump’s unpredictability.
Could all the worries be overblown? According to analysts covering the stock, the answer could very well be yes. Forecasts for the next two years look broadly optimistic with volume, revenue and earnings set to increase substantially in almost every region.
And if demand picks up then this could be a chance to buy in at a low valuation. The forward price-to-earnings ratio of 12 looks like one of the FTSE 100’s cheapest offerings. I’d not be surprised to look back on this as a low point in the years ahead. I think it’s worth considering.
