Diageo Shares Increase Following Trading Update Before AGM

Shares of Diageo saw a notable increase on Thursday following the release of a trading statement in advance of its 2024 annual general meeting.

At 6:58 am, Diageo’s stock was trading 4.6% higher at £2,613.5.

According to analysts from BofA Securities, the current environment for spirits is still challenging, maintaining the same outlook as two months prior. They reiterated a ‘buy’ rating for the stock, setting a target price of £2,800. Analysts believe that the worst may be over in many markets, viewing the international spirits sector as still appealing, supported by key growth drivers such as demographics, market share gains in alcohol, and premiumization.

The trading statement did not provide specific financial figures or reference the previously stated mid-term sales growth target of 5 to 7%, marking a departure from earlier updates. Instead, Diageo conveyed that it is well-positioned to outperform the market as consumer conditions improve.

BofA analysts suggested that the company might be moving away from this target, which aligns with the prevailing market consensus closer to 5%. They view this shift as a positive adjustment in line with current market expectations.

While the update lacked specific regional details, analysts noted that major trends remain stable. In the U.S., the spirits market is flat, reflecting Diageo’s performance with the industry. In Europe, beer is continuing to outperform spirits, which are lagging. Latin America shows early signs of stability, excluding the volatile situation in Mexico, while Asia presents a mixed scenario with strong performance in India and challenges in Australia. In China, Diageo is facing tough comparisons due to last year’s exceptional growth.

BofA predicts stronger growth than consensus expectations, forecasting sales growth of 4.5% to 5%, EBIT growth of 5.5% to 6%, and an EPS increase of 7% to 8% over the mid-term.

Despite trading at a 7% premium to European staples, Diageo’s valuation is considered attractive in comparison to many U.S. peers, bolstered by its robust portfolio and market position.