FTSE heads for seven week high as miners and oil rise, but Diageo dips on disposals

Discussion in 'Market News' started by Lily, Oct 7, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Leading shares lifted by strength in commodity sector and SABMiller bid

    Leading shares are at their highest level for nearly seven weeks, helped by continued strength in the mining sector and rising oil prices.

    Takeover activity also boosted sentiment, with SABMiller up 64p at £36.86 after it received a £68bn, £42.15 a share, offer from Anheuser-Busch InBev.

    We recommend investors raise their exposure to emerging markets/commodities given the combination of very low sentiment, attractive relative valuations and a likely inflection in macro sentiment...We upgrade mining/materials from underweight to overweight and reiterate our overweight position in energy.

    We see this as a further positive move in the Diageo recovery story through improving its balance sheet position. The transaction will reduce Diageo’s leverage in the current year to around 2.5 times from 2.6 times based on our forecasts. We currently have a hold recommendation on Diageo at present.

    We see the assets swap announced by Diageo and Heineken as credit positive for Diageo and neutral for Heineken.

    The assets swap benefits Diageo because, together with greater control of its Ghanaian business, the company plans to use the £515m from Heineken to reduce debt, which will help the company’s deleveraging efforts.

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