The European spirit producers are preparing themselves for the possible fallout from new US tariffs. This could pose a serious threat to their businesses.
Analysts at Berenberg acknowledge that there are risks, but they believe that the leading companies in this sector remain well-positioned to weather the storm.
They said that although the proposed duties may have a significant effect, major spirits producers had already priced in most of the potential downside.
In a note, Berenberg analysts Javier Lastra & Craig Sinclair state that “large spirit makers in Europe have a strong position to face US Tariffs” despite the fact that they are a major concern.
They said that the stock prices of spirits have fallen to levels that already discount negative scenarios. Diageo and Pernod Ricard are the most attractive brands in this context.
The analysts said that “the tariff threat should not be underestimated, as a duty of 200% could kill an import-spirit industry”.
The recent suggestion by US President Donald Trump of a tariff of 200% on European alcohol imports has sent waves through the market.
Trump’s threat was a countermeasure against the European Union’s planned hike in tariffs on American whiskey and related products.
Beer and soft drinks are relatively insulated from the pressure on liquor stocks
After Trump’s announcement, shares in prominent European beverage companies immediately suffered pressure.
French spirits companies Pernod Ricard, Remy Cointreau and Italian drinks maker Davide Campari all saw declines.
Diageo and Moet & Chandon, owned by the British multinational Diageo as well as luxury giant LVMH, have experienced modest declines.
Analysts at Berenberg noted that the beer and soft drink industries are relatively immune to tariffs.
These industries tend to recover faster from cyclical downturns than the spirits industry.
The bank has chosen Heineken as its top pick, but also sees upside for AB InBev, and Molson Coors.
Coca-Cola Hellenic, a soft drink that is a standout in the market, has been given a Buy rating by the firm.
Diageo’s (DGE) risk is heightened by tariff uncertainty, but the gains outweigh the risks
Berenberg initiated coverage of Diageo on Wednesday with a Buy Rating and a Price Target of 23.72 GBP. This represents a 15% increase in the share price.
The firm’s analysts suggest that the recent decline of the company–down over 5% in the last month–offers investors an attractive entry point.
Diageo’s global presence and superior Return on Invested Capital (ROIC) justify the premium it charges over its competitors, such as Pernod Ricard.
The report also addressed the tariff concerns. It recognized that they were notable challenges, but not insurmountable.
Analysts at Berenberg consider the uncertainty around tariffs as a risk factor. However, they believe that the potential gains investors can make on Diageo’s shares outweigh this concern for the moment.
Pernod Ricard’s valuation compelling despite tariff uncertainty
Berenberg has also initiated coverage of Pernod Ricard SA (RI:FP), (EPA:PERP), (OTC: PDRDY), with a Buy and a EUR 114.00 price target.
The decision comes after the company recently retracted its mid-term growth guidance of 4-7% in its H1 FY25 Results, a move that was echoed by Diageo. Some analysts have described this as a “clearing” event.
Berenberg notes that Pernod Ricard’s current valuation already includes a significant portion of the tariff risk.
The firm believes that a resolution on tariffs would help restore the stock’s value to a more normal level in the short-term.
Pernod Ricard’s stock is currently trading at a multiple of 12.0 for FY26E EV/EBITA, or 12.9 when tariff-related effects are taken into account. This is below its historical average of 14.0 times.
Berenberg finds Pernod Ricard’s valuation compelling, despite the uncertainty surrounding trade policies.
The firm believes that investors will find the risk-reward ratio attractive, as much of the tariff risks are already factored into the share price.
Davide Campari Milano should be cautious due to its reliance on international markets
Berenberg has initiated a Hold Rating on Davide Campari Milano, with a price goal of EUR6.30.
The firm is cautious about Campari’s future due to its dependence on key international markets.
Campari’s net sales could be affected by new trade tariffs. The company is at risk of losing 25% of its revenue if the duties are implemented.
Analysts also point out that, if trade tensions subside, the company may benefit from a significant revaluation.
Sector remains attractive despite tariff concerns
Analysts at Berenberg suggest that investors shouldn’t overreact to the proposed tariffs, even though they remain a risk factor.
Diageo, Pernod Ricard and other large spirits producers have diversified operations with a global footprint that allows them to minimize potential losses.
Analysts warn, however, that a duty of 200% could be devastating to some import-dependent business, making it an important issue to watch.
Berenberg’s Report highlights the importance of monitoring ongoing negotiations between the US & EU.
If tariffs are imposed, firms with a high exposure to the US Market may have to adapt their production or explore alternative revenue streams.
The sector is still a mix of opportunities and risks, but the well-positioned companies will likely emerge stronger on the long term.
This post Berenberg remains bullish on Diageo despite looming US tariffs of 200%: Here’s why could be modified as new developments unfold.
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