Market Report: City wonders if Diageo will spirit away Guinness
It may be the best-selling stout in the world – and arguably the Emerald Isle's most famous export – but that did not stop the prospect of Diageo bidding farewell to Guinness being discussed in the City yesterday. As traders looked forward to enjoying a pint of the black stuff last night, Investec's Martin Deboo was suggesting that the drinks giant's flagship brand may actually be holding it back.
Claiming that Guinness sales have been rising at a slower rate than the rest of its brands, with younger drinkers failing to be attracted by what he described as a taste "uncompromising by today's bland standards", the analyst said a disposal "could be both value-enhancing in its own right and realise funds for further ... investment".
Any funds from a sale of its brewing operations, Mr Deboo argued, could then be splashed on boosting its position as the "global leader in spirits", snapping up brands such as Rémy Cointreau cognac or José Cuervo tequila. However, he did concede that there might be a problem finding a buyer, with Heineken – "the most plausible alternative owner" – having recently made a number of significant acquisitions.
Something that rather suggests a disposal of Guinness isn't around the corner is Diageo's pledge earlier this month to invest £128m in the drink's St James's Gate brewery in Dublin. However, recent rumours have claimed that its boss Paul Walsh could be considering a move to pastures new, which Mr Deboo argued would be a "potential positive catalyst for a new strategy".
The analyst was singing the praises of Diageo generally, calling it "an increasingly scarce asset in UK investing – a global leader in branded consumer goods". He also upgraded his rating to "buy", adding the company was showing "new levels of ambition", as it was lifted 12p to 1,393p.
The FTSE 100 may have closed 12.6 points worse off at 5,728.55, but it has still gained over 90 points this week. Rumours during the day that Greece and its creditors could be about to reach a deal helped prevent any major profit-taking, although disappointing economic data from China left the miners largely in the red.
The session's big loser on the blue-chip index was Weir Group, with the engineer retreating 125p to 1,954p. The slump was pinned on the recent fall in gas prices, which City voices warned would harm the growth of the shale gas industry, which Weir has been recently increasing its exposure to.
There was relief around Vodafone after the mobile telecoms operator won a major tax case in India and shot up 2.55p to 177.05p. Meanwhile, British Airways owner International Airlines Group flew 2.1p higher to 167.6p as its Iberia airline avoided strikes by reaching a deal with its ground staff.
After Apple revealed plans earlier in the week to revolutionise the world of virtual textbooks, analysts were arguing over Pearson's decision to sign up to the US tech giant's plans. Nomura's Matthew Walker warned that it could have "negative implications" for the publisher, saying the cheap price of the iPad books was likely to more than cancel out any production savings.
UBS was more optimistic, however, saying it was glad Apple was not setting itself up in direct competition. Traders were not overly enthusiastic, as they pondered who would actually provide the money for school kids to have an iPad, although Pearson still crept up 3p to 1,233p.
There were some rather well-worn bid tales doing the rounds on the FTSE 250, including familiar speculation that Morrisons (up 2.7p to 293.8p) or Marks & Spencer (up 7.7p to 334.7p) could have Ocado on their shopping lists. Although traders yawned as they rubbished the idea yet again, a short squeeze saw the online grocer drive 9.43 per cent higher to 88.08
Misys was another continuing to attract vague takeover rumours, which prompted the software firm 17.9p higher to 310p. This was despite cautious noises ahead of its interim figures next week, with Panmure Gordon's George O'Connor saying there was a good chance its outlook statement would be "downbeat".
Tui Travel was also still being propped by vague bid speculation – with the tour operator climbing 6.8p to 196.8p – as was the small-cap baby products retailer Mothercare, which closed 10.93 per cent better off at 203p.
Down on AIM, advertising firm Adventis' share price almost tripled, spiking up 1.45p to 2.2p. The tiddler revealed it was hoping to post full-year gross revenues of £29m, with punters cheering the news that its recent restructuring is complete.
Meanwhile, AEA Technology slumped 28.74 per cent to 0.31p as the climate change consultancy slipped out a warning just before the bell admitting its profits will be hit by yet more problems at its Washington unit.
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