LIVE MARKETS-European beverages: low direct Middle East exposure, sensitivities elsewhere
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EUROPEAN BEVERAGES: LOW DIRECT MIDDLE EAST EXPOSURE, SENSITIVITIES ELSEWHERE
Jefferies has taken a look at the European beverages sector to understand the impact of the region-wide conflict in the Middle East and financial market turmoil.
The bank found that direct sales exposure to the region is low, but the sector would still have to navigate a jump in oil prices, a stronger dollar and broad consumer impact.
"Given low direct exposure to the Middle East, the topline impact from current geopolitical developments is negligible," writes Jefferies.
But the flight to the safety of the dollar =USD could pose an issue, with the U.S. currency rising meaningfully this week.
"This is eroding some of the FX gains year to date, which is marginally negative for beer given large EM exposures," writes Jefferies. However, despite the recovery in recent days, they expect FX to still be a tailwind for both USD and EUR reporters with large exposure to emerging markets.
The rise in oil prices is also something that requires monitoring. Jefferies believes that brewers and soft drinks companies under their coverage remain well hedged for 2026, but if oil prices were to remain at current levels, that would represent a circa 15% rise from 2025.
" We estimate that a 10% increase in the energy price requires pricing of c.1% to protect EBIT," Jefferies notes.
Overall, they are not making changes to their recommendations, with beer still their preferred sub-sector for 2026.
"Beer stocks are cheap vs staples," they note.
"We continue to see 2026 as a year where beer volumes should improve vs F25 which should translate into at least LSD (low-single-digit) sales growth and MSD (mid-single-digit) EBIT growth."
(Samuel Indyk)
EARLIER ON LIVE MARKETS:
EXTREME STRENGTH IN THE ENERGY SECTOR, BUT INSIDERS SELL - SENTIMENTRADER CLICK HERE
STOXX TAKES A BREATHER, HELPED BY TECH, DEFENSIVES CLICK HERE
EUROPE BEFORE THE BELL: TENTATIVE STABILISATION, SPAIN DOWN CLICK HERE
STOCKS DUMP MORE ON OIL SHOCK FEARS CLICK HERE
