Company insiders are some of the most informed participants in the market. If they’re spending their own money on company stock, it’s often worth taking a closer look.
In this report, we are going to highlight a large insider purchase at Diageo PLC (DGE:LN). Diageo is a multinational alcoholic beverages company that owns many well-known brands including Smirnoff, Johnnie Walker, Baileys, and Tanqueray. Headquartered in London, it operates in over 180 countries worldwide. The company is listed on the London Stock Exchange and currently has a market capitalization of £81.3 billion.
Diageo PLC: Insider Buying
Our insider transaction data shows that on 23 September, Diageo’s Chairman Javier Ferrán bought 25,000 shares at a price of £35.25 per share. This purchase cost the insider £881,250 and increased his holding to 278,749 shares.
This trade caught our attention due to its size. Our data shows that it is the largest insider purchase at Diageo since July 2019. The fact that Mr. Ferrán has spent nearly £900,000 on stock (and increased the size of his position by 10%) suggests that he is confident the stock is set to move higher.
It’s worth noting that Mr. Ferrán – who was appointed Chairman on 1 January 2017 – has a wealth of experience in the alcoholic beverages industry. Previously, he was President and CEO of Bacardi Ltd.
Solid H1 Results
Diageo’s recent H1 results showed that the company is making a good recovery after Covid-19.
Overall, sales for the first half of 2021 were up 8.3% to £12.7 billion. Meanwhile, sales in North America – the group’s largest market – were up 20.2%. Reported operating profit came in at £3.7 billion, up 75% year on year, while net cash from operating activities increased by £1.3 billion to £3.7 billion.
On the back of these results, the group raised its dividend by 5%. It also recommenced its capital return program.
Looking ahead, management was optimistic about the future: “While our business has recovered strongly in fiscal 21, with net sales growth on a constant basis ahead of fiscal 19 in three of our five regions, we expect near-term volatility in some markets. However, I remain optimistic about the growth prospects for our industry, with spirits continuing to gain a share of total beverage alcohol globally and premiumisation trends remaining strong. I believe Diageo is very well positioned to capture these exciting opportunities to drive long-term sustainable growth and shareholder value,” said CEO Ivan Menezes.
After the results, analysts at Credit Suisse raised their target price to 3,950p from 3,700p.
In light of these developments, we see the insider buying here as a bullish indicator.