HSBC bullish on spirits stock investments

14th March, 2017 by Amy Hopkins

Vodka has edged whisky as the preferred spirit among Britons, according to a new report from HSBC, which also recommends investors buy shares in Diageo due to a “global tailwind for spirits”.

HSBC has “increased confidence” in its stock recommendation for Smirnoff Vodka maker Diageo

According to the bank’s UK: Anatomy of the Consumer report, which includes a proprietary survey, the UK consumer is “surprisingly unfazed” by current economic uncertainty around Brexit.

The report states that consumers have not “made the link” between inflation and Brexit “as yet”.

Looking at the drinks sector, HSBC found that vodka was the UK’s favourite spirit, with 18.5% of those surveyed claiming it to be their preferred choice. Whisky came in at a close second with 17.9% of the vote and gin third with 11.4%. Almost 28% of those surveyed said they do not drink spirits at all.

“The results on preferences for spirits are not surprising, really, with vodka having edged whisky as most preferred sprit,” the report states. “Whisky as a category is booming and it’s not shocking that whisky makes a challenge for top spot when considering recent global trends, especially in developed markets.”

As such, HSBC highlighted its ‘Buy’ ratings for both Diageo and Pernod Ricard and said it “prefer[s] spirits structurally versus brewing for the medium-term”.

However, the bank said Diageo “brings the biggest assets to the table” and so names the UK-headquartered group as one of its 10 stock recommendations.

In December last year, credit rating agency Moody’s claimed Diageo has a “stronger credit quality” than Pernod Ricard based on the pair’s performances in key markets.

More than three quarters of the HSBC survey said they were not making significant changes to their drinking habits, however those who did are “evolving in the director of wine and spirits”.

The report adds that millennials are driving the boom since these consumers have embraced cocktail culture to a “significantly higher degree” than previous generations.

“Taking this perspective global, it is brown spirits driving growth in many emerging markets, with whisky generally growing in most countries and cognac back to growth in China and in the beginning stages of a long-term growth trend in the US,” it states.

“We like all of our spirits stocks in this scenario as we think the global boom in spirits is the rising tide lifting our group. These trends take years to finally develop and then tend to hold for a considerable period as well as younger drinkers carry their behaviours into later stages of adulthood.

“The long-term looks good for these investments, as this research suggests.”

HSBC also names Costa Coffee owner Whitbread, Restaurant Group and Tesco among its 10 stock recommendations.

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