Diageo shares could continue to benefit from weaker GBP/USD
Diageo and other FTSE 100 companies were on course to close last week in the red, but the pound was unable to take advantage of the dollar’s weakness, helping lift the drinks maker and other British blue-chips higher.
Diageo and the FTSE 100 was on course to end last week in the red, but thankfully for investors the pound was unable to take advantage of the dollar’s weakness, helping lift the drinks maker and other British blue-chips higher.
‘FTSE investors should perhaps be grateful for the fall in sterling, for had it not taken place the FTSE 100's performance would have been even more miserable,’ Chris Beauchamp, chief market analyst at IG, said.
Investors will be able to rely on a weak pound propping up Diageo and other FTSE 100 companies, with the coronavirus pandemic and Brexit set to weigh on GBP/USD for the foreseeable future.
‘Covid-19 has vividly demonstrated that governments, businesses and communities must work together to build more resilient societies, better able to withstand major social and economic shocks,’ Diageo CEO Ivan Menezes said.
Diageo is trading at £26.26 per share at the time of publication, with the stock down 17% year-to-date. The FTSE 100 meanwhile is trading marginally higher at 6112 points.
Berenberg sees modest gains for Diageo
Analysts at Berenberg gave a modest assessment of Diageo’s share price trajectory for the remainder of 2020, with the Hamburg-based investment bank reiterating its ‘hold’ rating for the drinks maker and issuing a target of £28.10 per share.
Based on where the maker of drinks like Guinness and Johnnie Walker is currently trading analysts at Berenberg believe the stock has a potential upside of 7%.
Diageo managed to deliver a resilient set of full-year 2020 results in August, with the company admitting that while the trajectory of the recovery is uncertain, the drinks maker is well-positioned to invest effectively, as consumer demand returns.
‘Recovery will depend on the success of public health measures, the impact of economic policies, the pace at which lockdown measures are eased and how quickly consumers choose to return to bars and restaurants and resume international travel,’ Menezes said.
‘Over the longer term, total beverage alcohol remains highly attractive, with robust fundamentals, and the actions we have taken over the last six years provide solid foundations to grow in a consistent, sustainable way,’ he added.
GBP/USD: technical analysis
GBP/USD saw sharp declines towards the end of the week, with Brexit uncertainty doing little to help sterling, according to Josh Mahony, senior market analyst at IG.
‘That has taken the pair back into the crucial $1.3064 support level,’ Mahony said. ‘With that level providing a crucial marker for GBP/USD today, we need to keep an eye out for a break or rebound around this level to determine sentiment as we move into the week.’
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