Diageos smaller footprint in China is a plus for investors

Diageo's smaller footprint in China is a plus for investors

Diageo has overtaken Pernod as the investor's choice in European spirits because it is more likely to spend on acquisitions, an analyst has said. 

The Johnnie Walker and Smirnoff owner also has a smaller footprint in China, which gives it more stability, analyst Nomura said in a note today (31 August). Pernod released its full-year results yesterday, with strong growth driven by sales increases in all regions except France.

But despite Pernod's healthy outlook for mid-term profits, Nomura said the possibility of M&A activity for Diageo puts the UK-headquartered firm in a better position.

“Pernod has been the preferred European spirits investment for long periods of time in the last ten years,” Nomura said.

“However, it is clear to us that Diageo now is seen by many investors as the preferred investment, and we believe this is not likely to change in the short term.”

Diageo “has the M&A story in spirits,” the analyst said, and it is “smaller in China where investors remain nervous”.

Pernod's much-vaunted whisky portfolio in China was one of its main drivers of full-year growth, with double-digit increases for brands including Chivas, Jameson and Royal Salute. However, the market remains difficult and international labels jostle for space in the 1% of the market not swallowed up by domestic white spirits.

Pernod CEO Pierre Pringuet said during a press conference yesterday the group was always on the lookout for new acquisitions, but had no immediate targets. He later told Reuters the group would prioritise bolt-on acquisitions in the US and emerging markets, but gave no details.

Meanwhile, long-running rumours that Diageo is aiming for a buyout of the Jose Cuervo brand persist.