Diageo PLC (LSE:DGE) is splitting opinion among City analysts with US group Jefferies today upgrading the Guinness and Johnnie Walker group to buy, albeit conceding it has challenges ahead.
Deutsche Bank maintained a 'sell' rating yesterday but Jefferies thinks that Diageo will start to look different as confidence in spirits growth increases and under a new, heavyweight CFO.
He, Nik Jhangiani, has joined from Coca Cola EuroPacific (CCEP) where since 2017 the total shareholder return is over 200%, notes the US bank, due to “consistent delivery across top-line, bottom-line and capital efficiency”.
Jefferies expects Jhangiani will bring fresh perspectives on cost discipline, cash and returns and sharpening execution and mean a renewed focus on growth, profit and cash with 2025 to be a trough year and recovery from 2026 onwards.
In particular, next February’s interim results should lay out the financial framework for 2027-29 and represent a clearing event for the shares.
As a reminder of its strengths, Jefferies adds that Diageo operates in an attractive med-term industry, has an enviable brand portfolio, a strong distribution network and proven marketing capabilities.
“Sentiment on spirits has been severely dented by an acute downgrade cycle, which has surpassed prior cycles in both depth and duration.
“Our upgrade is not about trying to precisely time the cycle; however, the data is not getting worse and destocking is largely complete.
“The market debate is that lack of growth is structural; our view is that it is cyclical and 2025 represents the trough.
The bank’s rating rises to ‘buy’ from ‘hold’ with a target price of £28.
Shares rose 0.3% to 2,348p.