Spirits group Diago PLC might have more bad news to come for investors, according to two top City brokers.
Shares in the Johnnie Walker, Guinness and Smirnoff group tanked 15% on Friday as it warned of slowing growth in Latin America/Caribbean, a region that accounts for around 11% of sales.
But that might not be the end of it, according to Deutsche Bank, one of the few brokers to have had a 'sell' rating on Diageo ahead of the warning and that had cut its share price target just days before.
The bank cut it again today, to 2,550p from 2,750p, with sales estimates for other regions in 2024, notably Europe, North America and Asia-Pacific, all lowered.
"Company commentary implies an organic margin decline in both the first half and full year 2024 fiscal year," Deutsche Bank said, adding that it sees a buyback next year as off the table.
'Sell' remains its stance.
Citi, too, says that even though Diageo saw the biggest one-day share price fall in its history on Friday, it is "tough to see a catalyst for the shares".
“Overall, the valuation de-rating of spirits appears to be largely complete and Diageo’s [current] buyback should provide a floor for the stock.
“But with LatAm destocking issues possibly lingering" into the second half of 2024 and given threats to first-half US organic sales growth, "it is not yet certain these Diageo downgrades will be the last“.
“We prefer Pernod”, is Citi’s investment conclusion.
Diageo shares today were flat at 2,851p.