Dry spell for European beverages

DRY SPELL FOR EUROPEAN BEVERAGES

European beverages are very cheap, even as the outlook for the sector is set to improve this year, Bernstein analysts say.

The sector was down 4% in the first quarter, underperforming the MSCI Europe and continuing the weakness seen last year, driven by estimate cuts, they say.

"While the sector continues to lack short-term catalysts, in our view the short term headwinds (especially for spirits) don't justify the trough valuation and we see huge room for re-rating as the environment improves in 2024," they write in a note.

They expect brewers' margins to benefit from lower costs, while spirit makers should recover their premium when weakness in the U.S. market and anxiety about China stabilise.

The analysts note the sector is trading at 2024 levels on consensus numbers and at a 14% premium to the MSCI Europe - very far form the 50% they say the sector deserves.

The French maker of Martell cognac Pernod Ricard RI is the most attractive name valuation-wise, they add.

(Anna Pruchnicka)

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