- Why investors might keep pushing Diageo to sell Guinness
- Reasons why companies are ‘shrinking to greatness’
- Activist investors are ramping up pressure on UK stocks to break themselves up
- Four UK stocks ripe for selling assets
“Speculation that Diageo might sell its Guinness brand and confirmation that WH Smith is thinking about offloading its UK high street business have got tongues wagging about which other stocks might be ready to put assets on the block,” says Dan Coatsworth, investment analyst at AJ Bell.
What’s driving asset sales?
“Selling assets to focus on what companies do best is a logical strategy. ‘Shrink to greatness’ is a way to describe this approach and it’s in vogue.
“Asset sales are often the result of a company’s strategy evolving over the years and going in a different direction to the original business model. At some point, companies realise it’s not worth having fingers in so many pies.
“Such a strategy can also be pursued because shareholders are calling for hidden value to be realised. Activist investors often look for companies they believe to be worth more broken up than the current sum of their parts. That’s why we often see activists push for asset sales, hoping the target company will get a good price and then return some of the proceeds to shareholders.
“Companies that have gone through a rough patch can also find themselves looking for solutions that might involve asset sales. The combination of getting a good price for a subsidiary business and being left with a more focused operation can be a powerful share price catalyst.”
Where next for Diageo?
“Exiting the beer sector by selling Guinness would leave Diageo as a pureplay spirits producer, assuming any deal also includes its other beer brands, Hop House 13, Kilkenny and Tusker Lager. That might encourage investors to pay a higher price for the shares because it would be more focused and have higher group profit margins.
“Diageo might have played down speculation that a Guinness sale is on the cards, but strategically it makes sense and chatter about a deal is not likely to go away. Guinness has considerable brand strength but has arguably been unloved inside the Diageo portfolio in recent years as the group chased opportunities in the spirit sector.
“With Diageo now experiencing a few challenges, selling the beer operations would allow management to focus more attention on the spirits portfolio and potentially use the proceeds to make more acquisitions in this space as well as give some cash back to shareholders – a potential win-win situation.”
Which other stocks have assets ripe for selling?
“Certain companies have already fired the starting gun to sell assets, including FTSE 100 distribution group DCC. The company said last November that it would focus solely on the energy sector and would sell its healthcare division and consider options for the technology arm.
“Others have consistently shot down suggestions they should sell assets, most notably Associated British Foods which has repeatedly said it would not sell or demerge the Primark retail chain despite it sticking out like a sore thumb from its other operations.
“Smiths Group has long been subject to break-up calls, with investors saying there is hidden value within its conglomerate structure. These calls remain prominent despite Smiths Group having sold its medical arm in 2022. On 17 January, activist investor Engine Capital laid out various suggestions including reasons why Smiths Group should be sold in whole or in pieces, or that it should list the John Crane division in the US. Expect to see Engine Capital ramp up the pressure in the coming months if Smiths Group doesn’t do anything.”
Four stocks with a compelling reason to offload certain operations or assets
Ashtead:
“There is one remaining piece in the puzzle to complete Ashtead’s transformation into a business solely focused on North America and that’s selling its UK operations. The UK arm is tiny compared to the rest of the group and selling it would enable management to focus on one continent.
“The recent decision to shift its main stock listing to the US was one of the final boxes to tick for this transformation. The UK arm made $72.8 million (£57.9 million) profit in 2024 compared to $102.1 million in Canada and $2.6 billion in the US. The UK’s profit margin was 8.2% versus 28.3% for the US. Getting rid of the UK business would be a no-brainer.”
ITV:
“Investors and analysts have long argued that ITV’s Studios arm could be worth more than the whole market value of the entire group. Content creation is big business and ITV’s Studios arm has a solid track record of producing shows that bring in a large audience. A buyer such as Netflix could access these skills and a rich back catalogue of content.
“The longer ITV’s share price goes nowhere, the greater likelihood that shareholders will start to push for change and selling the Studios arm is the logical place to start. The stock is down 48% over the past five years. Asset manager Redwheel is the second largest investor – it owns 6.08% of ITV – and takes an activist approach, so does Silchester which owns a 5.4% stake.”
Sainsbury’s:
“The grocer has adopted a food-first strategy in recent years and it’s going well. The sale of the group’s banking operations in 2024 proved the grocer isn’t shy about making bold decisions and focusing on what it does best. Getting rid of Argos could be the next step in this journey.
“Argos been stuck in the mud for some time and a lacklustre performance strengthens the case for Sainsbury’s cutting ties with the business. The grocery sector is highly competitive so there’s an argument that management should focus all their efforts on food and drink and not get sidetracked by the ongoing battles of general merchandise retailing.”
Unilever:
“Fund manager Terry Smith previously accused Unilever of focusing too much on ethical marketing and ‘virtue signalling’ than concentrating on the day job. This was after Unilever’s share price had gone through a weak period. Since then, Unilever has seen a change of leadership and laid the foundations for ‘shrinking to greatness’.
“The ice cream arm is set to be demerged, a water purification business has been sold, and it has accepted an offer for its Unox and Zwan brands. There was also speculation a few months ago that it is planning to auction off its plant-based food brand, The Vegetarian Butcher.
“The reshaping strategy is expected to continue in 2025 and there are several food-related brands which look ripe to be sold.
“Unilever has talked about wanting to focus on fewer and bigger brands on categories such as cooking aids, mini meals and condiments. It could be open to selling Bovril, Colman’s and Maille – all iconic brands that should easily find a willing buyer looking to give them more attention.”
