Diageo PLC (LSE:DGE) could revive performance if it leans harder into mainstream spirits and steps back from premiumisation, that's according to analysts at RBC, who have repeated an 'Outperform' rating and £20.00 price target.
RBC said the most plausible route to recovery is a bigger push into mainstream price points and a less passive stance on category growth. It argued Diageo should behave more like an industry leader in driving the spirits category forward.
The broker addressed the cost of that pivot. RBC estimates high-end brands earn an earnings margin (EBIT) margin close to 10 percentage points above the rest of the portfolio. It expects a greater mix of mainstream participation to create a c.200bps headwind. RBC has reflected this in its forecasts, with EBIT margin down 210bps in 2027E.
RBC also pointed to Diageo’s $625 million cost-saving target, around 3% of sales, describing it as reasonable. And, the Canadian bank said that, when combined with the margin reduction, Diageo could deploy around 500bps to restore competitiveness.
On dividends, RBC said there is no need for a cut, though it could happen if management accelerates de-gearing. On timing, RBC added: “We wouldn't wait too long.”