We had been concerned that consumer demand for premium Spirits might falter in the pandemic-related economic downturn. However, the opposite has occurred as consumers have been even more willing to treat themselves to expensive ‘simple pleasures’ – both at home and out of home – than they were before. In most markets, volumes and sales of Spirits are already back above pre-pandemic levels. Furthermore, Diageo is reaping the benefits of its investments into marketing and execution tools. These give the company a competitive advantage in the marketplace, and are a key enabler of management’s target to increase its category market share from 4% today to 6% by 2030. Our adj basic EPS forecast rises 6% to 135.8p in FY22E; we raise by 7% to 152.7p in FY23E and by 8% to 166.9p in FY24E. We had been lower than consensus, so we expect consensus will be moving up by less than us. Diageo is making good progress on ESG-related initiatives including gender diversity, waste, biodiversity and emissions. We believe this is supportive for the share price as investors increasingly demand better ESG characteristics from their portfolios. We raise our target CY22E PE multiple to 26.5x (10yr NTM PE avg. 20.2x) to obtain our new 3,800p TP (prev. 3,300p). We note there is still over 10% downside to the fair value implied by our DCF (WACC 7.1%, terminal growth rate 3.0%). Some possible positive catalysts include Indian tariffs on imported Scotch coming down, Global Travel Retail recovering and the availability of meaningful M&A targets. Possible negative catalysts include rising gas prices in the US putting pressure on consumer spending and further lockdowns affecting the on-trade channel’s recovery.