Diageo PLC (LSE:DGE) has retained an 'Outperform' rating from RBC Capital Markets, with the broker maintaining its £20 price target as it backed chief executive Sir Dave Lewis’s turnaround strategy.
RBC said the plan unveiled at Diageo’s August 6 Capital Markets Day was credible despite uncertainty surrounding the global spirits market. The broker believes cost savings and organisational changes should allow Diageo to invest in pricing, revenue management and ready-to-drink products without requiring a major margin reset.
It estimates adverse geographic and brand mix, pricing investment and the ready-to-drink (RTD) shift could weigh on margins by around 2 percentage points, but said planned cost savings should more than offset the pressure. RBC forecasts a 230 basis point increase in earnings before interest and tax (EBIT) margin by 2029.
Organic sales growth is forecast at -0.3% in 2027, 1.4% in 2028 and 2.6% in 2029, while net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to fall from 3.7 times in 2026 to 2.2 times by 2029.
RBC said improving return on invested capital could be particularly important for the shares, given the close relationship between return on invested capital (ROIC) and Diageo’s share-price performance over the past decade.
The £20 target compares with a reference price of 1,719p, implying around 18% upside.
