Diageo PLC (LSE:DGE) could unlock between $5 billion and $8 billion from asset sales as part of plans to streamline its portfolio and accelerate deleveraging, according to UBS.
The Swiss bank, which maintained a 'buy' rating and 2,450p price target on the shares, believes proceeds from potential disposals could strengthen the Smirnoff and Guinness maker's balance sheet and fund new share buybacks.
Analysts identified five possible divestment targets: East African beer operations, the Chinese Baijiu business, the RCB Indian cricket franchise, local Turkish spirits brands, and US value labels such as Captain Morgan and Seagram’s 7.
Together, these represent about 11% of group sales and 12% of EBIT.
UBS estimates that mid-range disposal proceeds of $6.4 billion could reduce Diageo’s net debt-to-EBITDA ratio to 2.2x by the 2027 and 1.9x by 2028 financial year, below the group's 2.5-3x target.
The move would be likely to dilute earnings by about 5%, but the analysts reckon this could be partially offset by up to $4.5 billion of share buybacks by FY28.
UBS said the resulting improvement in leverage and capital efficiency “should help drive a re-rating” in Diageo’s shares.