Battle Of The Booze: Should You Buy Diageo plc, SABMiller plc Or JD Wetherspoon plc?

Today I am looking at three drinks giants that could be considered stellar stock candidates.


Beverages play Diageo (LSE: DGE) has seen the bottom line erode over the past year as declining alcohol demand in critical growth markets has weighed. Indeed, crippling anti-extravagance measures in the Asian powerhouse of China has been a particular bugbear for the London firm.

City analysts expect Diageo to register a 3% earnings slip in the year concluding June 2015 as reduced spend from these key regions weighs. But the fruits of heavy product marketing and development — particularly in the white-hot premium sector — is anticipated to get the bottom line moving higher from next year, and a 9% bounce is currently pencilled in.

These figures leave Diageo trading on P/E multiples of 21.1 times and 19.3 times prospective earnings for these years, outside the benchmark of 15 times which signals attractive value for money. Still, I believe that the strength of the firm’s market-leading products such as Johnnie Walker and Crown Royal whiskey labels, combined with expanding presence in emerging markets, leaves the business in great shape to enjoy long-term earnings growth and fully justifies this premium.

Given the prospect of resurgent sales growth, Diageo is anticipated to keep its progressive dividend policy rolling in the coming years, and estimated payments of 54.4p per share for 2015 and 58.1p for 2016 create handy yields of 2.8% and 3%.


Like Diageo, the issue of declining volumes in developing markets has also dented the top line at beer goliath SABMiller (LSE: SAB). But like its peer, I believe that takings should tick higher once again once current cyclical problems abate.

The result of falling off-take in key regions is anticipated to push earnings lower at SABMiller, and a 4% drop is expected for the 12 months ending March 2015. However, increases of 8% and 10% are anticipated for fiscal 2016 and 2017 correspondingly as these pressures abate and brand innovation pays off.

And like its rival, SABMiller also trades on P/E multiples above what would be considered terrific value on paper, with the beer giant carrying readings of 22.7 times and 20.7 times for 2016 and 2017 respectively. But I also believe that, like its rival, SABMiller has both the brand power — achieved through the likes of Castle and Peroni — to achieve strong growth in the coming years.

As well, SABMiller also carries handy-if-unspectacular dividend yields for the next few years, with forecast payouts of 75.6p per share for 2016 and 82.1p for 2017 producing readings of 2% and 2.2%.

JD Wetherspoon

The release of an intriguing half-year report from pub chain Wetherspoon’s (LSE: JDW) has worried the market in Friday business, and shares were last seen trading 4.3% lower on the day. Although revenues charged 9% higher during August-January, to £745m, pre-tax profits slipped 1% to £37.5m as increased staff costs and intense competition from supermarkets weighed.

Wetherspoon’s also announced plans to ratchet up its assault on the coffee and breakfast market, with the introduction of cheap Lavazza coffee — and the promise of free refills — and cut-price grub coming into play from next week. Baker Greggs has already proved that aggressive overtures in this market can reap huge rewards despite obvious margin pressures, so this latest move by Wetherspoon’s could provide another hefty growth lever.

The City expects earnings at the business to edge 3% higher in the year ending July 2015 before accelerating thereafter, and a 13% advance is pencilled in for 2016. As a result Wetherspoon’s changes hands on more-than-reasonable P/E multiples of 16.7 times and 14.8 times for these years.

With earnings expected to keep ticking higher the bartender is anticipated to get dividends chugging higher again, the firm having kept the payout locked at 12p per share for what seems like an eternity now. A total payout of 12.4p per share is predicted for 2015, creating a yield of 1.5%, while a 2016 reward of 12.8p drives this to 1.6%.

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Royston Wild has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.