FTSE 100 alcoholic drinks maker Diageo PLC (LON:DGE) has been added to the European focus list at Citigroup as analysts said the market was failing to appreciate a positive portfolio mix which would drive profit growth.
Analysts at the investment bank, which holds a 'buy' rating and 3,200p target price on the stock, said the owner of brands such as Guinness and Smirnoff could derive “incremental value creation” through its beer ranges, adding that the company’s “consistent organic sales growth story and productivity savings” meant its underlying earnings (EBIT) would be “well ahead” of European rivals such as Pernod and Campari in the 2019 financial year.
The bank also said the “Coca-Cola-like” characteristics of the Guinness brand meant Diageo should consider an “asset-light roll-out strategy” in partnership with other global brewers, although if this fails, there is potential for a £11.4bn disposal.
The positive sentiment may give some in the company reason to be cheerful following a disappointing showing from its Moet Hennessy champagne business in July in the wake of its full-year results, when the product failed to sell in the quantities forecast, although operating profit for the year increased 3.7% to £3.7bn on net sales of £12.1bn, a 0.9% increase on 2017, despite currency headwinds.
In late-morning trading Thursday, Diageo shares were down 0.7% at 2,658.5p.