Market Report: Drinks giant Diageo misses out on the blue-chip party

The markets rallied last night but Diageo failed to make any headway amid worries about the outlook for the FTSE 100-listed drinks giant.

The stock fell by 5p to 1,105p, against a 1.4 per cent rise for the blue chips as a whole, after JP Morgan Cazenove said that while it was not anticipating any ugly surprises with the company's full-year results next week, it did think that Diageo's guidance for the year ahead "could disappoint".

Despite market hopes, the broker reckons that Diageo is unlikely to glide above "mid single digit" growth in organic earnings before interest and tax (Ebit). In fact, given the lack of visibility on the road ahead, JP Morgan warned that Diageo could guide to "low to mid single digit" growth, highlighting headwinds such as the prospect of further deterioration across Europe and the lack of pricing power in North America.

Though the company will benefit from the lack of one-off corporate costs incurred in the first half of 2010, the broker sees forecasts above its estimate of 5 per cent organic Ebit growth in 2011 as optimistic. "It should be remembered that, even in the booming economic conditions of 2003-7, Diageo only grew organic Ebit in the 7 to 9 per cent range," the broker said. It repeated its "neutral" view, with a revised 1,050p target price, compared to 1,100p previously.

Overall, the mining sector underpinned the FTSE 100's 74.45 point rise to 5,350.55, while the FTSE 250, reassured by in-line inflation figures, gained 137.62 points to 9,911.85.

Higher metals prices drove the likes of Lonmin, which closed up 88p at 1,582p, and Xstrata, which rose 45.5p to 1,059.5p. In the wider sector, Kazakhmys gained 43p to 1,219p after Bank of America-Merrill Lynch switched its view on the stock from "underperform" to "neutral".

Vedanta Resources, which recently confirmed plans to buy a majority stake in the Cairn India oil business, was also strong, adding 67p to 2,220p despite some cautious comment from the credit ratings agencies. Fitch lowered its ratings to reflect the size of the deal, while Moody's said it was reviewing the miner's ratings for a possible downgrade. Standard & Poor's also highlighted the possibility of a near term downgrade, placing Vedanta on "credit watch" with negative implications. On the upside, the stock was supported by Merrill, which moved the miner to "buy".

Aviva, which recently confirmed that it had rebuffed RSA Insurance's approach for its general insurance businesses in the UK, Ireland and Canada, gained 19.4p to 397.3p amid talk of bid interest from its French peer, Axa. Other insurers were also firm, with RSA up 0.9p at 125.4p, Standard Life adding 3.2p to 213.6p, and Legal & General gaining 2.05p to 93.25p. Prudential, whose ratings were affirmed and removed from "creditwatch" negative by Standard & Poor's, was the strongest, pulling ahead of Aviva with a 28.5p rise to 583.5p.

The banks were riding high amid talk of short covering. Standard Chartered was the strongest of the lot, adding 58.5p to 1,773.5p, while Barclays swung to 327.1p, up 8.8p, and HSBC gained 13.2p to close at 667.7p.

Royal Bank of Scotland was 1.33p ahead at 47.25p and its state-backed peer Lloyds closed at 70.69p, up 1.28p, despite some words of caution on the part of Morgan Stanley.

British Airways strengthened after BAA and the Unite union reached an agreement to prevent a threatened walkout by ground staff at major UK airports, including Heathrow and Stansted. The airline was 5p ahead at 221.2p as investors heaved a sigh of relief. Elsewhere, defensives had little luck, with United Utilities, for instance, closing unchanged at 590.5p and Severn Trent ending just 1p higher at 1,325p as traders switched into riskier investments.

Further afield, the oil services group Hunting gained 22p to 583.5p on the back of the recent acquisition of the US electronics business Innova-Extel for $125m (£80m). RBS analysts said the deal was "significantly earnings enhancing", and should boost this year's earnings before interest, tax, deprecation and amortisation by 8 per cent. Earnings per share are also slated to rise, with RBS anticipating a 5 per cent uplift for 2010.

The engineering group Spectris which makes precision instruments and controls, was aided by Jefferies. Returning from one of its industry conferences, the broker said there was reason to think that investors could be greeted with a positive surprise when the company issues its half-yearly figures next week. "Although there were occasional exceptions, most of the feedback from the companies attending our conference was neutral to reassuring," Jefferies said, upping Spectris, which gained 8.5p to 891.5p, to "hold" from "underperform".

"There may be hesitations along the path – as there will always be – but the direction of travel seems clear and our earlier pessimism of the timing and rating of a general recovery in industrial investment (especially to the extent that it might affect Spectris) now seem to have been overdone," the broker added.

It revised its target for the company's shares to 820p from 750p.

News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
Life and Style
Customers can get their caffeine fix on the move
food + drink
News
newsRyan Crighton goes in search of the capo dei capi
Extras
indybest

PROMOTED VIDEO
Arts and Entertainment
Actors front row from left, Jared Leto, Jennifer Lawrence, Meryl Streep, Ellen DeGeneres, Bradley Cooper, Peter Nyongío Jr., and, second row, from left, Channing Tatum, Julia Roberts, Kevin Spacey, Brad Pitt, Lupita Nyongío and Angelina Jolie as they pose for a
film
Sport
sport
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Life and Style
news

As Voltaire once said, “Ice cream is exquisite. What a pity it isn’t illegal”

Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Service Desk Analyst- Desktop Support, Helpdesk, ITIL

£20000 - £27000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Service Desk Analyst - (Active Directory, Support, London)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst - (Active Di...

Junior Quant Analyst - C++, Boost, Data Mining

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Junior Quant Analyst (Machine Learning, SQL, VBA)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition