EU beverages may be facing a nasty hangover on Nov. 6
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EU BEVERAGES MAY BE FACING A NASTY HANGOVER ON NOV. 6
A Donald Trump victory in next week's U.S. presidential election could leave a nasty hangover for Europe's spirits makers if the former president emerges victorious and pushes ahead with significant tariffs on U.S. imports.
Trump has proposed tariffs of between 10% and 20% on all imported goods, but details remain light given the uncertainty surrounding the election outcome.
Still, Citi analysts have taken a look at how the proposed tariffs might impact Europe's spirits sector.
"Any import tariffs would likely have significant implications for the beverages, especially spirits, stocks," Citi says in a note.
"The U.S. is a key market for European beverages, with the spirits companies particularly exposed to import tariffs," they add.
The bank estimates 34% of Remy Cointreau's RCOP.PA group-wide sales could be affected by tariffs, all else being equal.
Diageo DGE.L (27% of sales), Campari CPRI.MI (18%) and Pernod PERP.PA (15%) could also be affected, Citi estimates.
Reprinted with permission of Citi Research. Not to be reproduced.
Under Citi's analysis, a 10% tariff could see -2% to -5% downside on group EPS, with Remy at the upper end and Pernod at the lower end.
But, while possible tariffs will be an overhang in the near term, Citi is more positive over the longer term,as earnings and valuations are close to trough levels.
"Although tariffs would clearly be an additional short-term headwind to many of our names, we remain structurally positive on the mid-term outlook for the spirits sector and reiterate our preference for Diageo," Citi adds.
Shares of the major spirits makers have tumbled year-to-date, as China also imposed anti-dumping measures on imports of brandy from the EU, after the 27-state bloc voted for tariffs on Chinese-made electric vehicles.
(Samuel Indyk)
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