Diageo share price: Tequila deal expected not to please investors

Shore Capital remains bullish on Johnnie Walker and Smirnoff owner

Diageo share price: Tequila deal expected not to please investors

Diageo’s (LON:DGE) deal to buy George Clooney’s tequila business might disappoint shareholders, analysts at Shore Capital have said. The comments come after the owner of the Johnnie Walker and Smirnoff brands unveiled earlier this week that it had inked a deal to buy Casamigos for up to $1 billion.

Diageo’s share price lost ground yesterday, shedding 1.62 percent to close at 2,336.00p, underperforming the broader London market, with the benchmark FTSE 100 index ending the session 0.11 percent lower at 7,439.29 points. The group’s shares have added more than 26 percent to their value over the past year, as compared with a 23-percent rise in the Footsie.

Shore Capital reiterated its ‘buy’ rating on Diageo yesterday, while noting that the group’s deal to buy George Clooney’s tequila business Casamigos might not please investors.

“The valuation of this deal may disappoint those investors who were expecting Diageo to announce capital returns guidance as leverage was coming down albeit we believe this was at least another year away without deals and assuming trading remained solid overall,” the broker’s analyst Phil Carroll commented, as quoted by Citywire. “Our view is that good brands in strategic growth categories are going to command high valuations. We believe this deal highlights Diageo to be focused on strengthening its position in a growth category in its most important market.”

The 24 analysts offering 12-month price targets for Diageo for the Financial Times have a median target of 2,440.00p on the shares, with a high estimate of 2,800.00p and a low estimate of 1,765.00p. As of June 16, the consensus forecast amongst 29 polled investment analysts covering the blue-chip group has it that the company will outperform the market.

As of 07:45 BST, Friday, 23 June, Diageo plc share price is 2,336.00p.

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