Berenberg positive on Diageo, Coca-Cola HBC amid tariff uncertainty

(Sharecast News) - Berenberg has given UK-listed drinks stocks Coca-Cola HBC and Diageo a 'buy' rating as part of its review of European beverage brands, as tariff-related newsflow and market volatility continues to dampen sentiment across the sector.

"The macro environment has not been kind to the beverages sector. For a sector that behaves like a bond proxy, the rise in the US bond yield from below 1% in early 2021 to the current 4.3% has been devastating for sector valuations," the broker said in a research note on Wednesday.

"However, the macro could be changing, in part thanks to the new Trump Administration and in part to lower inflation. An increased focus on fiscal deficits and lower nominal growth would be much supportive to the beverages sector."

Berenberg highlighted that the European beverages sector is getting closer to a cyclical low after the huge amount of destocking that has happened since late-2023 - a process which it said is still ongoing but affecting spirits companies more than beer producers.

Meanwhile, while tariffs are a serious concern for the industry, especially international spirits companies, the broker said that they should have limited impact on beer and soft drinks groups since their operations are "mostly local in nature".

It added: "However, it is the uncertainty about whether the tariffs are for real, temporary or just part of a negotiating strategy that is arguably worse for share prices."

Regarding UK-listed stocks, Berenberg highlighted Coca-Cola HBC as a key 'buy', saying that its valuation is still low despite the growth trajectory of the business. Diageo is also rated positively, saying it is among the best-placed spirits companies to manage tariff risk.