Broker snap: European uncertainties weigh on Diageo

15th Oct 2010 12:50

Although Diageo released a statement yesterday broadly in line with expectations, the group highlighted a weak consumer environment in Europe.The trading update for the premium drinks company, which has a portfolio of globally-renowned brands such as Smirnoff, Johnnie Walker and Guinness.revealed a 5% increase in net sales and a 7% rise in net assets over the first quarter. Despite this, Killik & Co. remain concerned about the outlook for consumer spending in developed markets in Europe "given high unemployment levels and the shift from on-trade to lower margin off-trade".The broker expects Diageo's expansion in Asia and the emerging market trend towards premium spirits to be positive in the long term, however even its strong financial position "will continue to be outweighed by these nearer-term issues" in Europe.The group is currently trading on 14.2 times the consensus for full earning to June 2011, yielding 3.6%. The broker has confirmed their 'sell' rating given the near-term uncertainties with a target price of 1136p.