Broker snap: Investec still a buyer of Diageo despite strong run

7th Aug 2012 11:05

Investec has hiked its target price for Diageo from 1,700p to 1,900p ahead of its preliminary results later this month, saying that the wine, spirits and beers group is set to deliver on year one of its three-year plan."Diageo were well on track to meet their new guidance targets as at Q3 and look set to announce a solid first year downpayment on their three year plan on August 23rd. We expect the promised 6% organic sales growth and c80 basis points of operating margin expansion," Investec said in a research note.The broker has adjusted its numbers for the recent acquisition of Ypioca in Brazil and nudges up its sales forecasts at constant currency to reflect a "decent" third quarter. More adverse FX movements reduce full-year earnings per share estimates by 1%.However, while the broker has maintained its 'buy' recommendation for the stock, Investec said that its buying conviction is lower than it was in January:"The shares are up by nearly 50% since new guidance was announced last August. Diageo has been a big beneficiary from the 'defensive rally' since June and the shares are at a three-year valuation peak relative to the market."by 11:04, shares were trading 0.53% higher at 1,708p.BC