The market hopes for a swift recovery in Spirits later this year, as evidenced by the valuations being near all-time highs. Management teams are, for the most part, abandoning guidance, and all expect calendar Q2 will be worse than calendar Q1. Recent off-trade scanner data from the US market is encouraging, but companies caution that this data does not reflect the whole off-trade channel which is less buoyant than the headlines suggest. Once restaurants and bars re-open, volumes will still be lower than previous levels. Establishments will need to serve fewer customers at a time, and many outlets will have decided to close altogether; we note Restaurant Group’s recent decision to close 125 of its sites in the UK. Consumers may choose to socialise differently going forward, too. On-trade activity in China, the first market to re-open, is still well below pre-crisis levels. We remain concerned about the 1-3% mix tailwind from premiumisation that has boosted Spirits sector growth over the last few years. This is now becoming a headwind as consumers re-prioritise spending, and trade down to mainstream brands. It is unlikely volumes can make up for this as people will not necessarily be drinking more. In some emerging markets (especially in Africa and India), there is also the risk of economically stressed consumers slipping out of the formal market into illicit/homebrew. We cut our Diageo forecasts following the recent updates from its listed subsidiaries and our conversations with the company. Our FY20E adj basic EPS is cut by a further 5% to 107.4p (slightly below the latest FactSet consensus); our FY21E adj basic EPS is cut 4% to 101.4p – still significantly below the FactSet consensus of 120.0p. Our Diageo TP is unchanged. We make no change to our forecasts or TP for Pernod. We retain Sell recommendations on both stocks.