Morgan Stanley Cuts Target on Diageo (DEO) as Growth Pressures Persist

Core Viewpoint - Diageo plc is facing growth pressures, leading to a reduction in its price target by Morgan Stanley, while the company is actively divesting assets to improve its balance sheet [2][3][6]. Group 1: Financial Adjustments - Morgan Stanley has lowered its price target for Diageo to 1,530 GBp from 1,595 GBp, maintaining an Underweight rating on the shares [2]. - Diageo is selling its 65% stake in East African Breweries Limited to Asahi for approximately $2.3 billion, which is part of its strategy to reduce debt [3][4]. - The deal values East African Breweries at $4.8 billion and is expected to decrease Diageo's net debt-to-earnings ratio by about 0.25 times, addressing the company's leverage issues [4]. Group 2: Strategic Moves - The asset sale to Asahi includes $2.35 billion for Diageo's full stake in Diageo Kenya and $646 million for a 53.8% stake in UDVK, reflecting a significant divestment strategy [5]. - Interim CEO Nik Jhangiani has indicated that significant divestments are necessary to alleviate balance sheet pressures, particularly in light of weaker alcohol demand and external trade tariffs [6]. Group 3: Market Presence - Despite the divestment, Diageo will maintain a presence in the Kenyan market through a licensing arrangement with East African Breweries Limited, ensuring continued commercial ties [4]. - Diageo produces and distributes a wide range of alcoholic beverages, including well-known brands such as Johnnie Walker and Crown Royal [6].