Buy - £24.50 price target, 34% upside We upgrade Diageo to Buy. While the wider Spirits market backdrop remains uncertain, we see significant self-help potential at DGE to drive a margin and EPS inflection from FY26, even if demand in aggregate is subdued. We see “this time as different” due to the renewed urgency across the organisation driven by new CFO Nik Jhangiani’s Accelerate efficiency plan ($500m gross savings by FY28). As benefits start to drop through, we see 20bp p.a. margin expansion potential (base case for FY26 and FY27), should organic sales growth persist at low-single digits, picking up to >40bp should growth normalise back >4%. Change of tone from the top focuses minds on internally-driven gains In our view, the tone from the company has changed from “hope for the best” to “prepare for the worst” with meaningful changes being made to cost allocation and in particular cash/capital deployment. While there is a risk that our upgrade is premature given continued volatile end-markets and sluggish Spirits demand (+3% organic sales CAGR), we are confident that shares can re-rate over the next 12-18 months as evidence of the margin delivery and FCF inflection come through. Valuation near absolute and relative lows Shares are -28% ytd and are down over 50% from mid-2022 highs (vs. EPS down c.20% over the period). DGE now trades on 14.3x cal.26 P/E and 11.5x EV/EBITDA, supported by a 4% dividend yield and an inflecting FCF yield (>$3bn p.a.). FY25 net debt should be 3.3-3.5x EBITDA, ahead of the target 2.5-3.0x range. However, we expect this to fall back towards 2.5x over time as DGE delivers its FCF inflection strategy (with likely capex and working capital cuts), accelerated by likely “significant” incremental disposals and providing optionality for buybacks.