Diageo PLC's (LSE:DGE) confirmation that Guinness or its MH stake (34%) are not for sale points to confidence that cash and returns will improve as recovery becomes visible according to US broker Jefferies.
The brokers added that the market narrative around such disposals is that they will help to unlock value through accelerating deleveraging and bringing forward buybacks.
Jefferies though sees the current environment as sub-optimal for a sale of either asset with Cognac (MH) at a cyclical low and Guinness already moving towards an asset-light model.
Sentiment on spirits has been severely dented by an acute downgrade cycle, with investors viewing the current growth hiatus as structural not cyclical.
“This negative narrative will only be put to bed once recovery becomes visible.
“For Diageo, even if there is no underlying uplift in consumption, the lapping of destocking in Latam and the US should drive a technical uplift of more than 3%.
Diageo reports interim results on 4 February and Jefferies thinks the company could provide a new guidance framework of 3-6% org sales and 4-8% org EBIT growth, with an emphasis on stronger returns in 2027.
Buy with a 2,800p target is the investment view.
Shares down 0.6% to 2,488p.