ABN Amro has initiated coverage of Allied Domecq. The broker began its coverage of the drinks group with a "hold" rating and a target price of 463 pence.

In a note to clients, ABN said that it expects the group to report an acceleration of operating profit growth in the second half of fiscal 2004, because trading conditions in Asia and Latin America are likely to have improved.

ABN noted that it thinks there is a probability this positive newsflow is driving, and may continue to drive, the share price above its intrinsic fundamental value.

The Dutch broker calculated that Allied Domecq is trading on a price/earnings multiple of 13.5 times 2004 estimates compared to 15.6 times for its peer group, thanks to its temporarily low tax rate.

However, ABN pointed out that Allied Domecq's 2004 EV/EBITDA multiple of 11.4 times and free cash flow yield of 5.4% is in line with its peer group.