UBS Turns Positive on European Brewers as Spirits Struggle Under Weak U.S. Demand

Brokerage upgrades Carlsberg and backs recovery for beer volumes into 2026 – while Diageo and Remy Cointreau are downgraded on fading sales in key markets

UBS has sharply shifted its outlook on Europe’s drinks sector, turning bullish on brewers while scaling back expectations for the global spirits industry. The bank believes beer producers are better positioned for volume recovery in 2026, helped by improving trading conditions in growth markets, new product expansion and easing cost pressures. Spirits, however, face a tougher year ahead as U.S. consumption softens and China sees rising promotional activity.

Beer Outlook Strengthens – Carlsberg Leads the Upgrade

The most notable change is UBS upgrading Carlsberg to Buy from Neutral, setting a price target of DKK 1,060, around 32% above its reference price of DKK 802.

UBS cited several reasons for the upgrade:

• Carlsberg is positioned for sustainable volume growth.
• Entry into the soft-drinks sector via Britvic opens new revenue streams.
• Increasing investment in China, where selling costs rose 14% in Q3.
• Free cash flow forecasts sit 15% above consensus, supported by moderating capex.
   

AB InBev and Heineken Also Backed for Recovery

UBS remains optimistic on the world’s largest brewer, AB InBev, setting a price target of €68. The bank expects a return to growth from Q2 2026, helped by improved consumption trends in Brazil and China.

The outlook includes:

• 1–1.5% annual volume growth forecast for the medium term.
• Around 13% compound annual earnings growth (EPS CAGR).
• Potential to expand its $6bn buyback programme to $10–11bn if excess cash is fully returned to shareholders.
   

Heineken retains its Buy rating with a €84 target, with UBS expecting volume growth to restart in Q1 2026. The drivers include:

• Easing retail comparatives across Europe.
• Strengthening demand in Mexico and Brazil leading into the World Cup.
• Growing consumption in Vietnam and India.
• Continued market-share gains in Africa.
  UBS sees EPS 5–7% above consensus, partly due to the consolidation of the FIFCO acquisition.
   

Spirits Take a Hit – Diageo and Remy Downgraded

Despite optimism for beer, UBS made a decisive downgrade on the spirits sector.

Diageo

• Cut to Neutral from Buy.
• Assigned price target £18.50.
• U.S. spirits sell-out volumes fell 9% in September/October.
• Tequila particularly weak — Don Julio down 17% year-on-year.
  UBS expects North American sales to decline 5% in FY26, well below consensus.
   

Remy Cointreau

• Downgraded to Sell with a €33 price target.
• U.S. cognac volumes continue to fall 9%.
• China faces aggressive pricing pressure and risk of post-holiday destocking.
• High leverage flagged: 3× net debt-to-EBITDA.
   

Pernod Ricard and Campari remain Neutral.

• UBS sees FY26 revenue at Pernod falling 2.6%, leverage rising to 3.6×.
• Campari faces weaker U.S. and European demand and storm disruption in Jamaica, although lower agave costs should support margins.
  Targets set at €6.20 for Campari and €75 for Pernod.
   

Soft Drinks Stand Stronger

One bright spot outside beer is Coca-Cola Europacific Partners, which retains a Buy rating with a $105 price target. UBS highlights:

• Strong momentum in energy drinks.
• Well-executed growth strategy.
• Total shareholder returns (dividends + buybacks) estimated above 6% of market cap annually.
   

Final Takeaway

UBS sees the European drinks landscape splitting in two. Brewers look primed for a comeback, supported by improving global consumption and attractive bottom-up valuations. Spirits, however, face structural headwinds, especially in the U.S. and China — with premium brands feeling the pressure most.

For investors, the message is clear: beer may offer better upside than whisky in 2026.

Sources: (Reuters.com, Investing.com)