Diageo Share Price Forecast September 2021 – Time to Buy DGE?

Shares of multinational alcoholic beverage Diageo (LSE: DGE) has been experiencing quite a surge lately, trading around the 3437p range at the time of writing. After suffering turbulence during 2020, the company has reported excellent revenue growth and sales in its 2021 annual report. Other metrics include a net sales growth of 16% to reach £12.7 billion and an increase of operating profits to £3.7 billion in 2021.

Diageo – Technical Analysis

According to the financial statement of Diageo, the market cap is at £80.594 billion with total assets worth £31.953 billion. Revenue for 2020 was at £12.73 billion with a profit margin of 20.89% compared to revenue of £11.75 billion in 2019.

Moving averages such for Diageo such as Exponential Moving Average (10)(3483.3), Simple Moving Average (10)(3488.8), Exponential Moving Average (20)(3504.6), Simple Moving Average (20)(3506.5) and Exponential Moving Average (30)(3512.6 ) have sell indications. On the other hand, oscillators such as Relative Strength Index (14)(36.7), Stochastic %K (14, 3, 3)(13.7), Commodity Channel Index (20)(−164.6) and Average Directional Index (14)(18.2) are neutral.

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Recent Developments

Diageo focuses on acquiring alcohol brands and has acquired over 200 brands in more than 180 countries. Investors have confidence in the company because of its growing cash reserves and strong buying potential.  It has expanded online sales by over 70% over the last year across the UK, Germany and China, though being relatively new to e-commerce. It also countered strict lockdown measures in Uganda and Kenya through the introduction of the “boda boda” motorcycle delivery app.

Diageo has been increasingly focusing on growing markets such as China, Africa and India. This is evident by the fact that over 20% of the company’s sales come from the Asia Pacific market. Asia, Africa and other growing economies are large alcohol markets because of their large spending potential. The company has made inroads in these markets through the acquisition of Smirnoff X1 in Africa, McDowell’s No. 1 in India, and Black & White in Latin America.

Sales from the Greater China region were the highest, increasing by 38% from 2020 levels. China is the largest alcohol market in the world which has surpassed Germany, the US and the UK combined. The company has also focused on reducing greenhouse gas emissions by 5.1% in 2021 and will reach net zero by 2030 in Scope 1 and 2 emissions. Sustainable practices always bode well for investors conducting pre-investing research, which is good news for Diageo’s long-term prospects.

Should You Buy DGE Shares?

Pricing power is a helpful tool to maintain profitability at a time of rising inflation. Diageo shows investors that selling alcohol is still a profitable business with a post-tax profit of £2.8 billion last year. Investors will find Diageo attractive because of its income and growth potential. While dividend offers some income potential, the company’s long-term business performance has underpinned the dividend, offering growth opportunities. DGE shares increased by a third over the past year.

However, there are also some risks for investors to consider. For instance, the growth is not assured as the increasing rejection of alcohol among the youth creates a problem for the company’s growth prospects. Growing restrictions on alcohol advertising in some markets may also hamper its growth. Both these trends can have a negative effect on revenue and profit. The company has responded to this by introducing nonalcoholic drinks such as Seedlip. However, considering the risk this creates for the company’s profits, investors would be wise to stay away from DGP shares for the time being

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