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Diageo Executes Well in First-Half Fiscal-Year 2021 but Shares Reflect Business Momentum

Analyst Note

| Philip Gorham, CFA, FRM |

Diageo's performance in the first half of fiscal 2021 was a touch better than our forecasts on both the top line and EPS. Given the circumstances, this was an all-round solid performance. We have updated our model for these results but make no changes to our GBX 2,600 fair value estimate. Investors' focus will understandably be on the speed of the volume recovery, but pricing is the more important metric in our view and was more or less in line with our forecast. We think the fairly robust volumes and margins and the strong free cash flow generation show that Diageo remains a wide moat business that is well-positioned for some favourable consumer trends and is executing as well as can be expected. This appears to be reflected in the current market price, however, which looks slightly bullish to us. We see greater value opportunities in companies facing short-term headwinds and risks, such as Anheuser-Busch InBev, and in the misunderstood tobacco category.

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Company Profile

Business Description

The product of a merger between Grand Metropolitan and Guinness in 1997, Diageo is the world's leading producer of branded premium spirits. It also produces and markets beer and wine. Brands include Johnnie Walker blended scotch, Smirnoff vodka, Crown Royal Canadian whiskey, Captain Morgan rum, Tanqueray gin, Baileys Irish Cream, and Guinness stout. Diageo also owns 34% of premium champagne and cognac maker Moet Hennessy, a subsidiary of French luxury-goods maker LVMH Moet Hennessy-Louis Vuitton, and a near-55% stake in India's United Spirits.

Lakeside Drive, Park Royal
London, NW10 7HQ, United Kingdom
T +44 2089786000
Sector Consumer Defensive
Industry Beverages - Wineries & Distilleries
Most Recent Earnings Jun 30, 2008
Fiscal Year End Jun 30, 2021
Stock Type
Employees 27,788