RBC Capital Markets sees signs that Diageo PLC (LSE:DGE) is beginning to take firmer control of its underperforming brand portfolio.
In a note, the Canadian bank's analysts repeated an 'Outperform' rating and 2,000p price target for the beer and spirits giant. The target implies meaningful upside from Diageo’s current level, around 1,600p.
There's early evidence of a broader commercial reset under incoming chief executive Sir Dave Lewis, RBC said, and added that a recent meeting with Diageo’s investor relations team had reinforced the view that the company is trying to “regain control of the category” whilst reactivating brands that have been neglected.
Casamigos is the only premium brand where Diageo believes a price reset is needed, according to RBC, but the broker said pricing could also form part of a wider revival across mainstream names such as Smirnoff, Bell’s and VAT69. For Smirnoff, RBC said ready-to-drink products are expected to play a role in the brand’s reactivation.
A key point for RBC was the tone being set by Lewis, with the broker noting that he discourages internal debate over whether Diageo’s issues are “structural versus cyclical”, viewing that framing as an “abrogation of control”. RBC interprets this as a long-overdue acceptance by Diageo of its responsibilities as a category leader, rather than simply “controlling the controllables”.