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Berenberg downgrades Diaego to 'hold', thinks US alcohol consumption set to stagnate

Berenberg’s analysts pointed out: “Over the past decade, US alcohol consumption has followed a more positive path than in other western economies – over the 2005/15 period, it increased by 15% versus a -7% drop in Germany ... and -6% in the UK”
Smirnoff vodka drinks
“However,” they added, “we forecast this to change in the next decade as alcohol consumption per capita declines by 0.4% pa"

Analysts at German broker Berenberg thinks that US alcohol consumption which has been rising over the past decade, is set to stagnate, impacting drinks companies such as Diageo plc (LON:DGE) which it has downgraded to ‘hold’ from ‘buy’.

In morning trading, Diageo shares were 1.4%, or 36p lower at 2,544.5p, with Berenberg  keeping a 2,550p price target on the FTSE 100-listed stock.

READ: Diageo surges on positive performance in all territories

In a Beverages sector note to clients, Berenberg’s analysts pointed out: “Over the past decade, US alcohol consumption has followed a more positive path than in other western economies – over the 2005/15 period, it increased by 15% versus a -7% drop in Germany, -4% in France, and -6% in the UK.”

“However,” they added, “we forecast this to change in the next decade as alcohol consumption per capita declines by 0.4% pa.”

The analysts noted that spirits companies - such as Johnnie Walker whiskey to Smirnoff vodka firm Diageo - have enjoyed good growth in the US, however, they think this is unlikely to continue, especially as Millennials become more health-conscious and Generation Z enters the legal drinking age.

They pointed out that US spirits pure alcohol volume grew at a compound average growth rate of 1.8% in the 2005-16 period, and forecast this to halve to 0.9% per annum from now until 2030.

READ: Diageo goes Hollywood with US$1bn deal for George Clooney’s Casamigos tequila

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