Pernod now expects FY20 EBIT to decline 20% organically. The magnitude of this decline relative to the company’s history is unprecedented. During 2009, in the immediate aftermath of the financial crisis, EBIT still grew 3.5% organically despite a flat top-line; after the Chinese government clamped down on corrupt activities in 2013, Pernod reported 3 years of flattish organic sales, but EBIT still grew by around 2% in each of those years. We anticipate that Diageo, Pernod’s closest peer, will soon issue another profit warning, too. We believe Diageo could be even more exposed to the on-trade than Pernod (it is more exposed to the US, which has a big on-trade channel, and to Beer, which skews more on-trade than Spirits), and therefore the magnitude of its downgrade could be greater. Longer term, we can understand that investors would like to buy Spirits companies for the superior growth, margins and returns on capital. However, it is unclear how long consumers will be told to stay away from restaurants and bars, and it is also unclear how many outlets will survive the crisis, leaving the on-trade landscape in FY21 uncertain. Consumer behaviour and socialisation patterns may also change going forward. Pernod, and other Consumer companies, will undoubtedly adapt to the new reality (whatever that is), but there may well be a period of adjustment where expectations for the timing of a rebound may be overly optimistic. With the large cap Consumer coverage universe on a CY20E PE of 12.7x, Pernod on 22.4x and Diageo on 18.2x (with further downgrades likely) appear unusually expensive on a relative basis – particularly as Spirits is one of the sectors most affected by coronavirus. The dividend yield of c. 3% is half the average yield across our coverage. There are better bargains elsewhere.