Credit Suisse downgrades Diageo as growth drivers falter

13th Mar 2015 10:25

Spirits group Diageo was shot down by analysts at Credit Suisse on Friday as they lowered their recommendation on the Smirnoff and Baileys maker from 'neutral' to 'underperform'.The bank, which cut its target price from 1,850p to 1,700p, said that the company's three drivers of earnings growth since 2008 - North American, scotch and African beer - each face structural challenges.These are expected to "impair the group's profit growth in the coming few years", as the rest of Diageo's businesses will not be able to make up the difference."In our view, the share price does not reflect a backdrop of falling returns and weaker earnings growth relative to peers," Credit Suisse said.Consumer demand in the States is moving away from mainstream brands towards niche and craft brands, and Diageo will likely have to raise investments in an attempt to boost growth, it said.Meanwhile, the bank claimed that Diageo's "over-reliance" in the scotch industry to the developing markets has been exposed by a recent slowdown; this has led to high inventory levels which could, in turn, result in "damaging" price cuts.In Africa, analysts cited a "material under-utilisation" of Diageo's foothold in the beer market to establish a spirits distribution platform.Diageo's stock was down 1.4% at 1,855.78p by 10:46.