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Diageo leads FTSE gains as Brexit deal offers new opportunities

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Diageo, the owner of Guinness and Johnnie Walker, has been a vocal proponent of the UK being able to strike its own trade deals since earlier this year. Photo: Peter Macdiarmid/Reuters
Diageo, the owner of Guinness and Johnnie Walker, has been a vocal proponent of the UK being able to strike its own trade deals since earlier this year. Photo: Peter Macdiarmid/Reuters

Drinks maker Diageo (DGE.L) was among the leaders on London’s FTSE (^FTSE) on Tuesday morning as it became one of the benefactors of the UK exiting the EU.

The Brexit deal, struck last Thursday, has allowed the nation to make its own trade deals.

The stock was up 5.1% at around 11.10am in London. It had a dramatic uptick on Tuesday, reaching a two-week high.

The FTSE (^FTSE) displayed solid growth on its first day of trading since the Brexit deal was struck last Thursday. The index reached a 9-month high in early trading and has continued to soar higher.

READ MORE: FTSE reaches 9-month record on US stimulus hopes and post-Brexit high

“Multinationals, who are the likeliest beneficiaries of frictionless, tariff-free trade and overseas currency earners are generally leading the charge in the FTSE 100, including Intertek and Diageo,” said Russ Mould, AJ Bell investment director.

Diageo and other beverage companies are among the foremost benefactors of Britain being able to strike its own trade deals after the nation exited the EU bloc. Chart: Yahoo Finance
Diageo and other beverage companies are among the foremost benefactors of Britain being able to strike its own trade deals after the nation exited the EU bloc. Chart: Yahoo Finance

Diageo, the owner of Guinness and Johnnie Walker, has been a vocal proponent of the UK being able to strike its own trade deals since earlier this year.

“We are very pleased to see the withdrawal agreement pass and the certainty that gives us,” Dan Mobley, Diageo’s global affairs director, told a London press conference on 30 January. “We have always said that we would take Brexit in our stride.”

In leaving the single market, there is less risk of additional tariffs or disruption to one’s supply chain.

“Our supply chain is almost entirely indigenous in the UK… so we can source pretty much everything we need here and we don’t face any new tariff barriers on trade into Europe whatever the future relationship will be,” said Mobley.

In a research note on 1 December, Deustche Bank also called Diageo a Hold to Buy stock, as “European Beverages offers an attractive combination of long term structural growth and semi-defensive/cyclical characteristics at an undemanding valuation relative to the market, European Staples and government bond yields.”

It went on to add that despite the Deutsche Bank’s data suggesting “the path to a new normal may be uneven,” it highlighted that “long term growth opportunity for European Beverages is attractive, material and in many cases undervalued.”

Analysts say the outlook for Diageo, in particular, also looks bright.

“Throw in the return of duty free shopping and the possibility to strike new trade deals with nations where tariffs on Scotch whisky are currently high, notably in Asia, and the drinks company has much to which it can look forward in 2021 and beyond,” said Mould.

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