Broker snap: Steady recovery in view at Diageo

31st Aug 2010 08:43

Charles Stanley described in-line full-year results from drinks brands giant Diageo as 'resilient' and the broker thinks trading should continue to improve gradually in line with the recovery in the global economy."Long term prospects remain good, given the unrivalled portfolio of premium drinks brands and distribution network. Prospects in emerging markets appear particularly good, given the growing number of middle-class consumers who aspire to drink international premium spirits brands," avers Charles Stanley investment analyst Sam Hart. "The group is well diversified by geography and product, is highly cash generative and has a sound balance sheet," Hart added, making the case for the broker's "accumulate" recommendation."We expect the group to continue to deliver solid growth in underlying earnings and dividends, whatever shape the global economic recovery takes," Hart said, though earnings estimates for 2011 and 2012 have been trimmed by around 1.5%, reflecting a slightly more subdued economic environment than previously anticipated. On projected fiscal 2011 earnings per share of 80p, the price/earnings multiple of 13.3 is a reasonable one, Hart maintains and represents a small discount to sector peer Pernod Ricard.