Top-level corporate insiders such as CEOs, CFOs, and Chairmen tend to have the most up-to-date information on their businesses. If they’re buying company stock, it’s generally a sign that the outlook for the stock is attractive.
In this report, we are going to highlight a large purchase from a top-level insider at Diageo PLC (DGE:LN). Diageo is a multinational alcoholic beverages company that owns a vast portfolio of brands including Smirnoff, Johnnie Walker, Baileys, and Tanqueray. The company is listed on the London Stock Exchange and currently has a market capitalization of £86.7 billion.
Diageo PLC: Insider Buying
Our insider transaction data shows that on January 27, Diageo Chairman Javier Ferrán picked up 25,000 shares at a price of £36.65 per share. This trade cost the insider £915,750 and increased his holding to 124,837 shares.
Mr. Ferrán – who has served as Chairman since early 2017 – has considerable industry experience. Previously, he spent over 10 years at Bacardi Limited, where he was President and CEO between 2003 and 2004.
He also has some investment experience. Currently, he is Senior Advisor and Chairman of the investee company board at BlackRock Long Term Private Capital. This background means he is likely to have a good understanding of Diageo’s intrinsic value.
What stands out about this trade from Mr. Ferran is its size. The fact that the insider has spent over £900k on stock suggests that he’s confident the stock is set to move higher.
Strong H1 Results
Diageo recently posted a strong set of results for the six months ended 31 December.
For the period, net sales came in at £8.0 billion, up 15.8% year on year. Meanwhile, operating profit amounted to £2.7 billion, up 22.5% year on year, with operating margin up 190 basis points. Diageo said that the growth reflected the continued recovery in on-trade, resilient consumer demand in off-trade, and market share gains, and was underpinned by favorable industry trends of spirits taking share of total beverage alcohol and premiumisation. On the back of these results, the company raised its dividend by 5%.
Looking ahead, management was confident about the future.
“We have made a strong start to fiscal 22. While we expect near-term volatility to remain, including potential impacts from Covid-19, global supply chain constraints and rising cost inflation, I am confident in our ability to successfully navigate these disruptions through the remainder of the year. Over the medium-term, from fiscal 23 to fiscal 25, we continue to expect organic net sales to consistently grow within a range of 5% to 7% and organic operating profit to grow sustainably within a range of 6% to 9%," said CEO Ivan Menezes.
In light of these strong results, we see the insider buying here as a bullish indicator.