Exane BNP upgrades Diageo; says worst is behind company

11th Sep 2015 12:19

(ShareCast News) - Exane BNP Paribas has upgraded Diageo to 'outperform' from 'neutral' and lifted the price target 10% to 1,900p."In a beverage sector which we continue to feel unenthusiastic about, we believe the worst is behind Diageo," said the French bank.It noted that Diageo has performed poorly in recent years, in both an operational and share price sense. Weak consumer demand, de-stocking and poor innovation/execution were all contributory factors, Exane said.In terms of the share price performance, it pointed out that Diageo stock has underperformed the European food, beverages and tobacco sectors by 24% in the last two years, the beverage sector by 12% and the MSCI Europe by 17%.However, Exane said that although it may not be evident in the numbers, "a lot of sensible work" has been done by chief executive officer Ivan Menezes and his team.It said there has been significant management change, cash conversion and sell-out have been prioritised and route to consumer has been strengthened. The bank expects these changes to become increasingly evident in results over the next 12 to 18 months."We see a sizeable opportunity to improve all facets of working capital, and coupled with a more restraint Capex policy, we see materially improved cash conversion in the years ahead."At 1230 BST, Diageo shares were down 0.4% at 1,722p.