Broker tips: Diageo, Hiscox, Howden Joinery

(Sharecast News) - Citi cut its price target on Diageo on Thursday to 2,200p from 2,425p after the drinks giant cut its full-year guidance and halved its dividend payout a day earlier, sending shares sharply lower, after weak trading in North America and China weighed heavily.

Citi, which rates Diageo at 'buy', said it was updating estimates to reflect the results, guidance change and dividend cut, and said the "challenging US marketplace" had prompted a further cut to its H226 and FY27 OSG/EBIT divisional estimates.

The bank now forecasts a FY26 group organic sales decline of 2.4%, consistent with Diageo's new guidance for a 2% to 3% drop, and also cut its FY27 group organic sales growth estimate from 3.2% to 1.9%.

"At EBIT, the CEO's observation that Diageo need to reinvest in the entire value chain, means we estimate FY26E organic EBIT -1.4%, (below management's flat-to-up-low single digit guide) and FY27E +2.1%, (previously +4.3%)," Citi said.

Citi said these factors prompt a 2.7% trim to its FY26 earnings per share forecast and a 4% trim to the estimate for FY27. It also said the 50% dividend cut rightly weighed on the stock price, but stated the scale of Wednesday's moves looked overdone.

"Near-term, income-fund outflow may be unhelpful but with expectations rebased to more realistic levels, further absolute downside should be limited," it said.

Analysts at RBC Capital Markets hiked their target price on insurance firm Hiscox from 1,600p to 1,710p on Thursday, citing "good momentum" in 2025 and an "attractive" retail outlook.

RBC Capital said Hiscox's FY25 results showed the benefits from strong pricing in the London market and reinsurance, with improving momentum in retail.

"We had expected a very good result at Hiscox Re in particular. We note that despite a $293m reserve release versus $146m at FY24, up from 3.7% to 7.2% of opening net reserves y/y, the confidence level improved from the 83rd to 86th percentile, above the top-end of the 75-85% target range," said RBC.

Given "strong" starting solvency, RBC said it was not surprised that this combined to allow for an increase in buyback for 2026.

While its earnings per share forecasts were little changed, looking out to FY28 gives "a big step-up in forecast earnings", said RBC, as benefits of Hiscox's change programme were "much more fully realised".

The Canadian bank, which has an 'outperform' rating on the stock, said its increased target price reflects "a more positive view" of cross-cycle return on tangible equity, up from 15.5% to 17%, equating to a 2x FY26 price-to-net asset value ratio, but only 10x FY28 price-to-earnings.

Stifel has maintained a 'buy' rating on Howden Joinery Group after the trade kitchen supplier's better-than-expected full-year results on Thursday, hailing "another year of outperformance against a tough market".

Full-year revenues from Howden were up 4% at £2.42bn, coming in ahead of Stifel's and consensus forecasts of £2.40bn, helped by 2.6% growth in UK like-for-like sales. Operating profits of £355m, up 5% year-on-year, were also well above the £341m market estimate, helped by improving margins despite cost pressures.

"Howden has outperformed the wider kitchen market again (with the overall market seeing a 'modest contraction'). The International like-for-like was +9.3%, impressive given the weak consumer environment in France," said Stifel, which has a 950p target price on the stock.

Looking forward, Stifel said the company was well placed to recover when consumer confidence in the UK picks up, estimating that restoring the volumes and margins lost since 2021 (-10% and -360bp respectively) could add almost 40% to current annual profits.

"The shares trade at 16.9x 12m forward PER (Bloomberg consensus), around 5% ahead of the 10-year average. This does not feel excessive in our view given the likelihood of improving growth in the UK and that Howden continues to lengthen its track record of market outperformance, high returns and capital discipline. The market also admires its widening moat and the strength of its balance sheet," Stifel added.