Broker snap: Diageo could accelerate divi growth

2nd Jul 2010 09:34

Nomura Securities has welcomed the finalisation of a 10-year funding agreement on pensions by drinks group Diageo and thinks the deal could open the door for the company to consider accelerating return of cash to shareholders.With the ratio of net debt to earnings before interest, tax, depreciation and amortisation expected to be down to 2.3:1 by the end of fiscal 2010 and lower still, at an estimated 1.8:1 at the end of the following year, the company should have scope to accelerate dividend flows and contemplate the resumption of share buybacks."This supports our positive view on the shares," said Nomura analyst Ian Shackleton, who thinks that Diageo's "dividend payments could rise faster than the historic 5% rate going forward." The company might even have scope for some bolt-on acquisitions of spirits brands, Shackleton speculates."We still see positive momentum in trading over the next few quarters, with strong performance in emerging markets, recovery underway in the US, and weakness in some markets in Europe being offset by strong positions in UK, Russia and others," Shackleton concluded.The broker has maintained its "buy" rating on the Guinness brewer and has a target price of 1530p.