Pernod Ricard to drink when drinks return to the bar

Drinking alcohol in the home always drives alcohol sales, but investors need to think about what will happen next. Pernod Ricard is doing well as the pandemic trend slows down.

Irish whiskey maker Jameson and vodka Absolut said on Wednesday that its sales for the year through June rose 10% at constant exchange rates, compared to the previous 12-month period. Although alcohol purchases at travel hubs such as airports are low, Pernod’s total sales and operating profits have returned to pre-crisis levels.

The Paris-listed company’s sales rose 16% in the United States, its largest market and the industry’s biggest profit pool. This is below the 24% growth that Diageo’s U.S. spirits business saw for the same period, UBS noted. Pernod sells more alcohol in bars and restaurants than its big London-based rival, and has therefore been hit harder by the closures.

This should be reversed as people return to the nightlife venues. Industry data is already showing a slowdown in purchases made for drinking at home. Jameson, one of Pernod’s most important brands, makes a third of its sales in the United States in bars, well above the 20% average for liquor.

Spirits stocks have been somewhat unlikely pandemic winners as alcohol consumption has shifted home. Alcohol took a share of the larger US beer alcohol market for two decades, but doubled its average annual gains to 1.1 percentage points in 2020, Bernstein analysis showed . Profit margins increased as drinkers bought more expensive brands than usual. Three glasses of Jameson at a bar equivalent to the cost of the entire bottle at home, so consumers traded.

Investor expectations are high: Europe’s big four spirits stocks are currently trading 34% to 58% above their 10-year averages as a multiple of future earnings. This compares to more moderate premiums of 23% for brewers Heineken and Carlsberg.

The pandemic has boosted trends in favor of alcohol stocks, but it’s far from clear that drinkers will continue to buy such expensive alcohol in stores now that the city’s nightlife is reopening. With its bias towards out-of-home consumption, Pernod is perhaps a safer bet than its peers as the barflies return.

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