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.