Investec upgrades Diageo to 'buy'

Investec upgraded Diageo on Tuesday to ‘buy’ from ‘hold’ on valuation grounds, following the share price decline.

It noted that Diageo is the largest spirits company in the world by sales and the third largest by market cap. It is also probably the most diversified spirits company across geographies and categories, Investec added.

In spite of this, it currently trades at a discount to all major spirits companies except Pernod.

"After incorporating the interim results and applying the latest FX rates, we nudge up FY23E adjusted earnings per share by 1% and nudge down FY24E by 1%," it said.

Investec said management left FY23 and medium-term guidance unchanged as the US slowdown in the first half was temporary, driven by tough comps and not by any worrying consumer trends.

"The interim dividend per share up 5% and a new £0.5bn buyback underscore its confidence," it said.

Investec left its price target on the shares unchanged at 3,900p.

At 1520 GMT, the shares were up 2.7% at 3,503.50p.