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UK Equities
Diageo drops as sales disappoint
From the Financial Times of Wed, 17 Dec 2014 19:20:13 GMT

Diageo was a laggard on Wednesday as investors took fright at a cautious update on its largest business.

The Smirnoff maker dropped 2 per cent to £17.91 after Larry Schwartz, head of Diageo’s North American division said during an investor call that Thanksgiving sales had been “not as strong as we would have hoped” and that price increases for some premium brands had gone too far, meaning 2014 profit margin improvement would be meagre compared with previous years. North America is Diageo’s most profitable territory, providing 45 per cent of group earnings.

However, analysts saw little new in the guidance from Diageo’s last update in October. Merrill Lynch, Diageo’s house broker, reckoned the margin guidance implied just a 0.8 per cent cut to 2015 earnings per share, which it said was more than compensated for by current currency exchange rates.

A rally for crude oil set the tone for the wider market, lifting the FTSE 100 from a session low of 6,240.32 to close at 6,336.48, up 4.65 points. BG Group was up 3.3 per cent to 854.7p and Royal Dutch Shell B advanced 2.9 per cent to £21.56, while Tullow Oil gained 3.6 per cent to 395.1p to lead the FTSE.

Brent crude at $50 a barrel means every oil company with debt covenants will breach them, forecast Exane BNP Paribas. However, it reckoned Tullow could cope with flat oil prices until 2017 by cutting capital expenditure rather than its dividend.

Retailer Dixons Carphone was up 3 per cent to 439.7p after its interim results beat forecasts and brought forward merger cost savings.

Catlin, the Lloyd’s of London insurer, jumped 10.8 per cent to a record high of 645p after confirming it had received a bid approach from New York-listed XL Group.

Hopes of a new consolidation wave lifted Lloyd’s peers such as Amlin, up 4.3 per cent to 460.9p.

Polyus Gold edged 0.8 per cent higher at 181.5p after a block of 63m shares changed hands, equivalent to about 2 per cent of the Russian miner, at 181p apiece. Polyus’s drop to a record low this week has sparked speculation of margin calls among its highly concentrated shareholder list.

Packaging maker Mondi, which had previously avoided the Russian sell-off, slipped back 3.2 per cent to £10.04 on worries about the earnings impact from the rouble’s slump. Mondi leases forests in Russia, which is estimated to provide 10 per cent of its revenue.

Shire faded 0.7 per cent to £45.22 on a report that the drugmaker has resumed its pursuit of NPS Pharmaceuticals, which was rumoured to be among its potential acquisition targets, along with peers such as Salix and Cubist. All M&A work was said to be halted when AbbVie launched its bid for Shire in May.

Zoopla Property fell 1.2 per cent to 195p after Savills, the estate agent, was reported to have said it did not plan to renew its contract with the property website. Savills said it received better inquiry levels from Rightmove and added that it would give its custom to Agents Mutual, the co-operative start-up due to launch in January.

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