Addressing the Premiumisation Hangover: Where is the Debate?

Research evidence excerpt

Addressing the Premiumisation Hangover: Where is the Debate?

e needs to be

evidence that this reset is final, which would allow investors to take a view on valuation given

the earnings floor.

2. Timing - when to buy. There are key questions around when the US data might improve.

How long will it take to reset the portfolio and rebuild execution muscle? JEF view: The strategy

update on 6 Aug should put a floor under earnings and be a clearing event.

3. Price cuts - how deep and will they work There is some scepticism around price cuts

and whether these can solve a demand problem. There are concerns about the "Marlboro

Friday" narrative and a race to the bottom, and it is unclear whether price cuts will drive volume

recovery, pose a risk of margin dilution without the growth benefit, or damage brand equity.

JEF view: Price cuts should be one-off in nature and limited in scope (15-16% of the portfolio).

They should be viewed in the context of the entire portfolio rather than as price cuts in isolation.

If they drive higher vols/sales/EBIT, the market is comfortable with margin dilution.

4. What do we get at the CMD? Is there a risk that the CMD is just a "holding statement" as

opposed to a broader strategy update? Investors want to understand the scale of a potential

price rest, the magnitude of cost savings, targets on delevering, and clear evidence of a

redesign of the operating framework. JEF view: The medium-term ambition is for the company

to win share and create shareholder value. An algo of LSD org sales, MSD org EBIT, 2-3% on

dividends, and 2-3% on SBB driving HSD-LDD TSR before re-rating is possible beyond the F27

transition/reset year, in our view.

5. Balance sheet and cash. Some scepticism around cash flow acceleration from here, given