Broker tips: Diageo, SABMiller, Britvic

26th Mar 2010 13:11

Nomura Securities has reiterated its 'buy' recommendation on Diageo after a presentation from the drinks company's US marketing director which emphasised the enduring importance of brands in the spirits trade.Diageo believes that the worst of the recession is over for the US drinks industry which should herald a return of enthusiasm for premium brands.The company is planning to produce variations on its standard lines, such as Captain Morgan branded Long Island Ice tea offerings, and is also investing in new premium products such as Swedish vodka Rokk and so-called super-premium products such as Ciroc vodka.'We see the introduction of new products [in the vodka category] as designed to protect existing price points in a category where top end pricing is under pressure, e.g. Ursus at under $12 should protect Smirnoff at $13+, and Rokk at high teens will compete against Pernod's Absolut brand and also provide protection for super-premium brands like Ciroc and Ketel One at over $20,' Nomura suggests.'Some other spirits companies criticise Diageo for throwing too many new products out into the market,' notes Nomura. 'On the other hand, this does show a strong commitment to innovation,' the broker argues. Royal Bank of Scotland (RBS) has raised its target price for SABMiller, arguing that the South African brewer's high emerging market exposure and low-risk beer category presence puts it in a sweet spot in the market.'As management continues to deliver against its growth plans, we believe recognition of the long term growth story's merits will continue to provide support for the stock,' according to RBS.The bank's stockbroking arm has raised its price target for SABMiller to 2000p from 1700p and has maintained its 'hold' rating. The stock trades on 15.4 times projected earnings for 2010, which RBS said is in line with the stock's European peers and the ten-year average Price/earnings ratio.Expectations of robust trading in the UK and the potential for mergers and acquisitions activity have prompted Citigroup to up its target price on Britvic, the soft drinks firm that distributes Pepsi in the UK, to 500p from 445p.Citi notes that the soft drinks market has remained resilient, with fizzy drinks performing well in particular.It also thinks that Britvic was too cautious in its January update when the company said that the wintery weather conditions had affected sales.Citigroup has a 'buy' rating on Britvic.