Rémy Cointreau drops 3.5% to 99.9 euros despite a quarterly revenue even better than expected and reassuring forecasts. The number two French wines and spirits is the victim of the lack of certainty of the market. For several months, the values of luxury and wines and spirits are being abused because of fears caused by the undeniable slowdown in Chinese growth. Except that this bout of weakness is slow to materialize among the leaders of the sector, LVMH, Kering, Pernod Ricard and Rémy Cointreau.
In a press conference, Chief Financial Officer Luca Marotta assured that his cognac sales in China should continue to grow in the coming months at the same pace as in the third quarter of his fiscal year 2018/2019, more than 20%.
Words that do not seem to have convinced investors. Unless they take advantage of this publication to take a portion of their profits on a title a priori well valued.
The stock is trading at 27.7 times the estimated earnings for 2020-21, a valuation multiple closer to that of luxury wines and spirits (20.3 times for Diageo, world leader in the sector).
In the third quarter of 2018/2019 closed at the end of December, the Charente group surprised with a turnover of 348 million euros, organic growth of 8.7%, against a consensus of + 8.2%.
Especially, Rémy Martin cognac, the main profit center of the group, saw its organic growth rise by 15.6% between October and December 2018, after a rise of 12.2% over the previous three months, well above the 13 , 3% anticipated by analysts.
In view of these factors, Rémy Cointreau confirms its objective of growth in current operating income over the 2018-2019 financial year, at constant scope and perimeter.
Bryan Garnier has confirmed his recommendation to buy and its target price of 136 euros on Rémy Cointreau after the announcement of a third quarter revenue higher than the consensus. The latter notes that the stock was penalized by fears of a sharp slowdown in China. The scenario of the consulting firm remains that of a gradual deceleration with a sustainable growth of about 10 to 15% for Rémy Cointreau.
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Strengths of value
– Cognac Group under the Remy Martin brand (nearly 60% of sales, € 1.1 billion), diversified in liqueurs and spirits (less than 30%, with Cointreau, Passoa and Metaxa, Mount Gay rum and Bruichladdich whiskey) and partner brands;
– International positioning, the United States, very dynamic, being the Group’s largest market (35% of sales in the Americas including 27% in cognac), ahead of Asia-Pacific (32%) and the rest of the world, including 15% for Europe;
– Strategy focused on high-end premium and super premium products, with the Centaure ranges, highly sought after in emerging countries, and enhanced by external growth;
– Sales divided between 3 divisions – Rémy Martin for 63%, liqueurs and spirits for 25% and partner brands;
– Return of growth in China, both in volume and value;
– Support for the decline in stocks by the size of stocks, whose value is estimated at € 50 per share;
– Sound financial situation, reinforcing anticipations of acquisitions or return to shareholders.
Weaknesses in value
– Lack of critical size compared to competitors and strong dependence on cognac;
– Sensitivity to travel retail (15% of sales), tourism and risk attacks;
– Great disparity in operating profitability between Rémi Martin (more than 30%), liqueurs and spirits of the group (more than 20%) and partner brands (less than 5%);
– Negative impact of foreign exchange on the results of the first half of 2017-2018;
– In the United States, a slowdown in the spirits market and a decline in the spirits market;
– Value expensive compared to its competitors Pernod Ricard and Diageo, at its highest historical.
How to follow the value
– “Chinese” value whose market valuation follows the ups and downs of China’s economy and, occasionally, the New Year (in February);
– High seasonality of sales, resulting in a staggered fiscal year on March 31;
– Implementation of the 2019/2020 strategic plan: upgrading the range of products to the position of world leader in exceptional spirits, at a unit price of over $ 50 and a current operating margin of 22%;
– continued strong growth in cognac sales in the United States;
– Waiting for a lifting of the embargo on Russia;
– Achievement of the 2017-2018 target of organic sales growth;
– Group controlled by the Hériard Dubreuil family, with 50.81% of the shares and 68% of the voting rights.
