Diageo has seen some much-needed good news with the price of a key ingredient in Tequila down by 85% from its peak in late 2022.
Analysts at Deutsche Bank, however, don’t see that as sufficient for them to change their sell recommendation, with Campari likely to see a bigger benefit.
Agave or Blue Cacti prices are down to MXP 5 per kg, an 85% reduction from peak, added the broker.
“Assuming an average cost of MXP 25 per kilo in 2023, we estimate this could provide a 15%, 8%, 4% tailwind to EBIT [underlying profit] for Campari, Diageo, and Pernod Ricard respectively albeit the precise timing of this benefit is difficult to predict.
“Analysis of tequila pricing in the US suggests it is unlikely all of this benefit is lost to lower prices albeit history suggests there is scope for smaller players to gain share.”
Diageo has five tequila brands on its website including Astra, Don Julio and Casamigos.
Deutsche Bank added: “We remain 'sell' rated on Diageo but acknowledge lower Agave may be a partial offset to the headwinds we continue to expect in the US.“
Shares in the spirits group eased by 0.4% to 2,795p.