In my opinion, having a Self-Invested Personal Pension (SIPP) is a great way of aiming for a more comfortable retirement. But I’m not looking to give up work just yet. This means I’m still on the hunt for stocks that could deliver some healthy gains over the long term.
With this in mind, could Diageo (LSE:DGE) be just what I’m looking for? Let’s see.
The big reveal
Most companies announce their results at 7am, an hour before the stock market opens. However, on Thursday (6 August), Diageo did things a little differently. It unveiled its results for the year ended 30 June 2026 (FY26) at 11am.
It’s almost as though it wanted to hog the limelight and achieve maximum publicity. In these circumstances, the results had better be good. Indeed, investors were initially impressed. Within seven minutes of publication (how do people digest 42 pages of detailed financial information so quickly?) the drinks group’s shares were up 9.2%.
At first glance, this didn’t make sense to me. After all, the FY26 numbers showed a 26.3% reduction in earnings per share (EPS). But on reflection, I suspect most investors were more interested in the adjusted numbers.
To cope with falling sales brought about by a change in drinking habits, the group’s embarked on an expensive restructuring exercise. When the associated costs of $2.52bn are excluded, Diageo looks to be doing much better. For example, its FY26 diluted earnings per share of $1.65 (£1.23) was marginally higher than in FY25.
A difficult market
However, sales are still falling. Spirits accounted for 75% of FY26 revenue with the segment’s three biggest contributors – scotch, tequila, and vodka — recording year-on-year movements in net sales of +5%, -16%, and -3% respectively.
By contrast, Guinness continues to do well. The brand saw a 11% increase in net sales.
Other bad news – like the halving of the dividend – had already been flagged. Despite the group’s troubles, it generated $4.39bn of cash from its operating activities in FY26, $95m more than in FY25.
Encouragingly, net debt fell by $1.4bn to $20.5bn at 30 June. Relative to earnings, it’s also fallen. However, at 3.1 times EBITDA (earnings before interest, tax, depreciation, and amortisation) it remains on the high side.
Looking ahead
As well as its FY26 results, Diageo’s also unveiled its new strategy.
It plans to:
Double the production capacity of Guinness.
Expand its ready-to-drink cocktail brands.
Significantly reduce its 30,000 workforce.
The group says this will help it achieve its medium-term objectives. For FY27, the group expects:
“Broadly flat” organic net sales growth.
In percentage terms, organic operating profit growth of “low- to mid-single-digit”.
Free cash flow (FCF) of around $2bn.
Net debt/EBITDA of around 2.75.
For FY27-FY29:
My view
Although Diageo has lots to offer – it sells into 180 countries and has 13 brands with worldwide sales in excess of $1bn – I think there are better opportunities to consider elsewhere.
In my opinion, the turnaround strategy is going to take longer than I initially thought. Although I’m a long-term investor, I can’t see there being a step-change in Diageo’s performance any time soon. For this reason, I’m going to look for alternative potential candidates for my SIPP.
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James Beard does not hold any positions in the companies mentioned.
The post Is it time to consider Diageo shares for my SIPP? appeared first on The Twelfth Magpie.
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