Diageo and Pernod Ricard: Transferring Coverage of the Largest Global Distillers

We are transferring coverage of Diageo and Pernod Ricard. For Diageo, we lower our fair value estimate to GBX 2,590/$132 from GBX 3,100/$157. For Pernod Ricard, we lower our fair value estimate to EUR 129 from EUR 185. At current prices, both firms appear modestly undervalued. We see low investor confidence in the spirits industry, given the post-covid demand reset. However, we believe the sector will recover and both firms can reach their medium-term targets. We maintain our wide moat, standard capital allocation, and low uncertainty ratings for both firms.