US slowdown a temporary blip. Management stressed both on the conference call and during the subsequent sell-side analyst roundtable that the US consumer is not trading down and demand is solid. There was slightly weaker execution in the US off-trade, which led to slight market-share loss, but this was a fairly minor issue and is expected to improve going forward. The key driver of volumes, -4% in North America (and -6% in US Spirits), was the cycling of very tough comps from when distributors and retailers re-built their inventories as COVID restrictions eased. Diageo actually gained share in the US on-trade, reflecting healthy consumer demand for its brands. Elsewhere in the markets demand is strong. The consumer has been surprisingly strong in Europe during H1 (volumes flat, sales +10%). India remains solid (volumes +7%, sales +11%). Chinese New Year was better than expected, and China volumes were +2% in H1 despite restrictions in place for much of the period. SE Asia (volume +44%) is rebounding quickly and even South Korea is delivering good growth (Windsor volume +56%), albeit off a weak base. LatAm was also strong (volume +6%, sales +20%). Management left FY guidance unchanged. We forecast FY23E organic sales +7.0% and organic underlying EBIT +8.0%, in line with guidance. Valuation. Diageo is the largest Spirits company in the world by sales and the third largest by market cap. It is also probably the most diversified Spirits company across geographies and categories. In spite of this, it is currently trading at a discount to all major Spirits companies except Pernod. The DCF returns a fair value of 4,112p. We leave our 3,900p TP unchanged; this implies a CY23E PE of 22x, which we feel is very achievable based on peer comps and Diageo’s historic range.