Jefferies rates Diageo a 'buy' amid Ciroc sale rumours

Jefferies has reiterated a 'buy' rating for Diageo on the back of speculation that the drinks giant is considering a sale of its Ciroc brand, saying that any potential sale would be accretive to top-line growth.

A Bloomberg report on Thursday said that Diageo has approached potential bidders to gauge interest regarding the sale of its vodka brand, Ciroc.

The speculation follows a breakdown in the relationship with once-brand ambassador and co-owner Sean 'Diddy' Combs, who is current facing allegations of racketeering and sex trafficking.

Jefferies cited IWSR data which suggests that Ciroc amounted to 1.4m cases and $1.47bn in retail sales in 2023, which the broker said equates to 0.5% of Diageo's group volumes and 2-3% of sales.

"We have detected a decreasing emphasis placed on the brand, which saw an organic sales decline of -26% in F24. We estimate that the disposal could be accretive >50bps to group growth," the broker said.

Regarding the wider group's business, Jefferies said 2025 will be a "trough year" for Diageo, with a recovery expected thereafter.

"Companies do not change overnight; however, we think that Diageo will start to look different as confidence in spirits growth increases and under a new, heavyweight CFO, where we expect to see a renewed focus on growth, profit and cash," the broker said.

Jefferies kept a 2,800p target price for the stock, which was down 1% at 2,501p by 1026 GMT.