Author |Hayekist

Data support | Tougou big data

Chucks (price bidding) all prefer brands of addictive consumer goods, and the benefits are self-evident:(1) consumers are loyal to the brand, and the marginal cost of getting customers is constantly falling.(2) repeated consumption will bring endless demand.Guizhou Moutai is undoubtedly the leader of this kind of companies, so it brings rich returns to investors.

There is a company in Shanghai Luntong that can barely compete with Maotai-Diageo PLC.The company, from the UK, is one of the world's largest alcoholic beverage companies listed in New York (DEO) and the London Stock Exchange (DGE.L), with a range of top liquor brands spanning distilled wine, wine and beer.According to the "Global Spirits Market Research report" in 2019, Diageo PLC ranks first in Top15 enterprises in the global spirits market.

1

Diageo PLC, who works hard for his life

On closer inspection, Diageo PLC is really hard-working compared with Maotai.

Human beings love wine, there is no need to talk about it, but the tastes are very different.Maotai is very lucky in the face of 1.4 billion people with the same culture, similar habits and the pursuit of similar people, so it is a great blessing to be able to easily sell 100 million bottles of wine a year, easily achieve operating income of 77.19 billion yuan, and obtain an amazing net interest rate of 51.37% (2018 annual report data), corresponding to 35.2 billion net profit.38% of the total alcohol consumption is Chinese liquor.

Diageo PLC, on the other hand, laboriously sells more than 200 wines in more than 180 countries around the world, but only achieves a net interest rate of 17.06%.Diageo PLC made an income of 12.163 billion pounds (105.7 billion yuan, at the latest exchange rate of 8.7 yuan) in fiscal year 2018 and made a net profit of just 3.16 billion pounds (26.1 billion yuan for Wind).

This may be a good inspiration for Maotai.Category diversification and brand diversification do not necessarily significantly improve profitability, but will increase management risk.In the face of the narrow domestic market, Diageo PLC has no choice but to expand his territory around the world in order to pursue growth.Maotai does not seem to need this for the time being, as long as it maintains the brand, steadily expands production capacity and ensures the quality of Maotai can achieve growth for a long time, at least there is no need to rush forward until the endogenous growth potential of the Chinese market is not exhausted.

The domestic market is still very large. According to the research data of Guanjianxia, the sales volume of spirits in China in 2018 is about 6.076 million tons, but the market concentration is very low. Guizhou Moutai sold 32500 tons in 2018, although it accounts for 63.5% of the high-end liquor market. But the total market share is only 0.53%.The future trend is that total liquor sales may decline, but due to the increase in per capita disposable income and the release of demographic dividends (in the next few years, more than 10 million people in China will reach the legal drinking age, which will bring incremental demand to the market). There is still room for the market share of high-end Maotai.As long as production and selling prices fall, Maotai will be able to continue to grow while maintaining high gross and net profit margins.On the other hand, Diageo PLC already has 30 per cent of the world's spirits market share, and there is little room for him to continue to expand his share on the premise of improving quality and efficiency.

2

Rich product line and strong brand operation

1. Product line

Diageo PLC mainly sells spirits and beer and owns a series of iconic brands, including:

Smirnoff (Crown)-the first vodka in the world

Johnnie Walker (Johnnie Walker)-- the number one Scotch Whisky in the world

Junk B (Treasure)-the second Scotch Whisky in the world

Bailey's (Bailey liqueur)-the first liqueur in the world

Captain Morgan (Captain Morgan)-the second rum in the world

Jose Cuervo Gold&Silver (handsome gold happy and silver happy)-- the first tequila in the world

Tanqueray-- the first imported gin in the United States

Guinness (Guinness)-the first dark beer in the world

In fact, Diageo PLC operates as many as 200 brands, all of which have their own connotations and enjoy a reputation in one place, in one country, or even around the world.Diageo PLC is the third of the top seven spirits champions in the world.

2. Brand operation

Diageo PLC was founded in 1997 by the merger of Grand Metropolitan (Met) and Guinness (Guinness).The merger of the two is the great assembly of the wine industry, and the combination of Diageo has become one of the best wine enterprises in the world.As the two companies serve high-end customers with high-end brands, the two have obvious synergy. The channel integration alone, that is, the reduction of marketing costs has brought economies of scale to Diageo PLC.At the same time, Diageo PLC sold its non-core business and low-margin business on a large scale in order to better focus on the development of the alcohol business.By 2003, the company's net interest rate had reached 24.8%, a significant increase from the net interest rate of about 8% before the merger.

After the improvement of cash flow, Diageo PLC launched mergers and acquisitions around the world, mainly in two dimensions.One is to consolidate its position in the global market of whisky.The second is to acquire the most popular spirits brands around the world, enter the local market in a way that is not opposed by consumers, and then use its hundred years of management experience and channel capabilities of billions of companies to create performance growth for themselves.

Diageo PLC is a new noun and brand created after the establishment of the company. the first half of the root of Diageo means "day" in Latin, and the second half of the root means "earth" in Greek, meaning to provide pleasure for the world every day.In terms of business essence, Diageo PLC is a brand operation company similar to Procter & Gamble Co, with almost stringent regulations on all its brands, meticulous to product display and other details.Take Johnnie Walker as an example, if there is any change in packaging, it must be personally approved by the general manager of the company.

On the one hand, Diageo PLC is good at promoting activities that share global creativity, such as sponsoring F1 events to lead the development of the global spirits market.As a long-time advocate of alcohol brand "rational drinking", Diageo PLC describes rational drinking as a part of recreation, leisure and social life, aiming to promote a responsible way of drinking to consumers.This is a value, consumer concept and corporate image they are trying to implant in the hearts of consumers around the world.

On the other hand, Diageo PLC pursues to integrate his brands into the cultural customs of different countries in order to achieve the maximum growth of localization.By investing a lot of manpower and material resources for each market, to develop marketing strategies suitable for the local market, to find British methods in the UK, to find Chinese methods in China, and to constantly learn and revise them.Because the successful experience of one market can not be simply transplanted or copied to other markets and achieve the same success.

3

Strong financial performance

1. The growth rate of sales is higher than the global average

According to the famous British alcoholic beverage media The Spirits Business (hereinafter referred to as:According to TSB, global spirits sales totaled about 2.42 billion cases in 2018, a growth rate of 1.1 per cent.Among them, the total sales of whisky categories (including Indian "whisky", world whisky and Scotch Whisky) are about 375 million cases, a growth rate of 2.8 per cent.

According to the report in the first half of fiscal year 2019 (July-December 2018), Diageo PLC's net organic sales grew by 7.5%, higher than in the previous nine years.Net organic sales grew by 5% in the full fiscal year 2018.

2. Not inferior to Maotai's ROE

Like Maotai, Diageo PLC consistently maintains a very high level of shareholder return and has a very strong free cash flow.The following table

Diageo PLC is also very generous to shareholders, unanimously active in dividends, with a cumulative dividend of 294.8 pence over the past five years.

4

Valuation logic

Diageo PLC's share price on the London Stock Exchange rose from 157.41 pence on August 28, 1988 to 3503.50 pence on August 25, 2019, rising 22.25 times in 31 years (excluding dividends), equivalent to an annual compound return of 10.52%, which is still very attractive.

1. Room for growth

Diageo PLC's investment value lies in the high predictability of his business model. The reason is simple:(1) consumption and drinking is a tradition and habit that is difficult for human beings to change in a short time, and the demand side will not rise and fall greatly.(2) the demand for high-end spirits has a significant elasticity to the global per capita GDP, that is, with the rise of global per capita GDP, the total demand for high-end spirits is expected to increase steadily.(3) the future global demographic dividend is still being released, mainly from countries such as India and Vietnam in Asia and Africa. Diageo PLC predicts that 730 million new consumers will be able to afford international high-quality spirits in the next 10 years.(4) from historical experience, the nominal price of high-quality spirits will not lag behind the level of global inflation, that is, there is reason to believe that Diageo PLC's medium-and long-term (5-10 years) net organic sales are expected to grow faster than the global nominal GDP.

2. Relative valuation

From the valuation system of the world's major wine companies, Diageo PLC's TTM-PE is currently the lowest.It is true that the implied profit growth rate is low, but it also represents a certain degree of security.

Because Diageo PLC's operation has a highly stable expectation basis (if the business is unstable, the DCF model does not make any sense), so it is reasonable to use the DCF model.Moreover, it is very convenient that the company has been disclosing the free cash flow data of shareholders, which makes the calculation of the model easier.The assumptions and parameters are set here:

(1) the discount rate is 8%(2) the global economic growth forecast of IMF in 2019 is expected to be 3.2% as the growth rate of Diageo PLC's shareholder free cash flow in the next 10 years.(3) the sustainable growth rate after 10 years is 2.5% (estimated by clapping head).

The calculated market capitalization is £45.022 billion, about 54 per cent of the current market capitalization of £83.1 billion.This should satisfy the safety margin of the most conservative chuck.

For a company like Diageo PLC, it is highly predictable, but it lacks the explosive growth, so it can be used as an important target of reverse investment.If you encounter a systemic collapse in the market and buy at a market capitalization of 60 billion pounds, future returns will not be lost to the market.