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Diageo upgraded to 'buy' by Citi after 'encouraging' update

Citi raised its rating on Diageo to ‘buy’ from ‘hold’ with a target price of 3,000p
Citi held a 'reassuring' call with the head of Diageo’s Latin American and Caribbean arm

Diageo PLC (LON:DGE) has provided an “encouraging” update about its margins as it works on reducing trade spend and sees the early benefits from the roll-out of a new marketing tool, according to Citigroup.

Citi raised its rating on the stock to ‘buy’ from ‘hold’ with a target price of 3,000p following a “reassuring” call with the head of Diageo’s Latin American and Caribbean president, Alberto Gavazzi.

Gavazzi revealed the group expects the Latin American and Caribbean business to deliver second half organic sales growth and margin improvements at a similar level to that reported in the first half of 7% and 97 basis points, respectively.

Citi said the update from Gavazzi provided “another positive data entry point” after the company revealed a recovery in China sales in January.

Net sales in China in the first half rose 32% in the first half, rebounding from a slump caused by the government’s crack-down on bribery that killed off the practice of gifting expensive whiskies and brandies among officials. Growth was driven by an 80% jump in sales of its Chinese white spirits.

READ: Gin and Tequila sales boost Diageo's first-half earnings

“The message around margin is also encouraging — The group is working on reducing trade spend and is seeing early benefits from the recent full roll-out of Catalyst (new marketing tool)," Citi added.

Catalyst is the group’s new digital interface that provides instant data to help marketers make strategic decisions. It is being used by its 1,200 marketers across 55 countries.

Catalyst started to reap rewards for the company in the first half by improving productivity and efficiency.

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