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We have adjusted our estimates ahead of Remy Cointreau''s Q424 sales reflecting minor operational changes to our estimates. We do not consider the changes to be material; our rating is unchanged.
Remy Cointreau Remy Cointreau SA
Summary of Q324 sales Remy Cointreau Q324 LFL sales declined -23.5% (in-line with co. cons.) and the delivery by division was also in-line with consensus expectation: Cognac LFL sales declined -33.9% (co. cons. -34.1%) and Liqueurs and Spirits LFL sales grew +4.3% (co. cons. +4.0%). Remy Martin Q3 value depletions declined -13.7% (improving from -32.8% in Q2) and grew slightly in China. While Q3 sales were therefore in-line with expectations (and commentary on the conference call generally pointed towards consensus estimate downgrades) Remy Cointreau shares experienced a material relief rally, closing up +15% on the day. News It is too early for Remy Cointreau to say whether its group LFL sales growth will be positive in FY25. Earnings We revise our FY24e / FY25e / FY26e EPS estimates by -3% / -9% / -8%. Investment thesis While material uncertainties hang over Remy Cointreau, we believe we may now be at the point of peak pain and the stock is trading below the estimated value of its inventories. Rating and target price We maintain our Outperform rating. Our target price moves from EUR115 to EUR109. 15 questions for management Given that incremental pricing opportunities in 2024 are likely to be limited, do you expect to be able to expand your EBIT margin in FY25e?
In view of the slashing of the 2024 outlook one month ago, expectations for the H1 figures were pretty low. Regarding the attractive level of the share price, a share buyback programme many come under the spotlight Efforts to cut costs are in progress and will safeguard profitability The limited visibility in the US and China is persisting and continues to feed the weak sentiment on the stock The FY 2025 consensus is likely to be revised downward
Summary of H124 results Remy Cointreau reported a H124 LFL Current Operating Profit (COP) decline of -43.0%, broadly in line with company consensus (-43.4%) with adjusted net profit beating consensus estimates by +2.4%, largely driven by lower tax due to improved geographical mix. From a divisional perspective, the majority of the weakness was driven by Cognac, in which LFL COP declined by -47.2% (co. cons -46.5%) while in the Liqueurs and Spirits division LFL COP declined by -3.5% (co. cons +3.5%). News We highlight that Remy Cointreau expect FY25 group LFL sales growth to be below the high-single digit mid-term growth algorithm. Earnings We revise our FY24e / FY25e / FY26e EPS estimates by -2% / -11% / -7%. Investment thesis While restoration of market confidence in Remy Cointreau''s US Cognac business will take time, we believe it will come and with it a strong rebound in the shares. Rating and target price We maintain our Outperform rating. Our target price moves from EUR150 to EUR140 (driven by revisions to our profit estimates). 15 questions for management Do you expect reported (EUR) sales in your US Cognac business to be higher or lower in FY25 than they were in FY20?
What''s the value of Remy Cointreau''s aged inventories? We upgraded Remy Cointreau to Outperform in August (see 5 questions and 1 answer) on the basis that, while visibility on US cognac demand trends was low, we saw good risk-reward in the shares. Regrettably, with the benefit of hindsight, the timing of our upgrade was poor. The recent further decline in the share price has prompted one question more than any other from investors in recent weeks: ''What''s the value of Remy Cointreau''s aged inventories?'' An argument we are not great fans of, but one that matters nevertheless In truth we are not great fans of the argument that estimating the value of Remy Cointreau''s aged inventories is a good basis for valuing the business. For, in reality, if we are wrong and there is a structural demand issue for high-end cognac, Remy''s aged inventories may be worth relatively little. Nevertheless, recent investor questions highlight that it is a metric that matters to the market. Based on the value of its ageing stock, we derive a valuation range of EUR106-119/share In the report we explore three approaches to calculating an estimated market value for Remy Cointreau''s ageing inventories. We derive valuations based on: 1) realisable value based on an estimated gross margin; 2) realisable value based on estimated Cognac liquid cost; 3) based on an scenario whereby the company winds down its remaining Cognac liquid in a hypothetical c.8-year DCF. Based on these approaches, we derive a valuation range of EUR106-119/share (at the end of FY24e). Conclusion: we believe we could be nearing a valuation trough We are not great fans of valuing Remy Cointreau based on its aged inventories. However, based upon our analysis and the number of questions we are receiving on inventory value, we would suggest that we are close to a valuation trough.
Summary of Q2/ H124 sales With its Q2 sales update Remy Cointreau materially cut its FY24 outlook and now expects group LFL sales to decline between -15-20% (previously stable) and aims for a ''contained organic decrease'' in its COP (current operating profit) margin (previously stable). As to the drivers of the profit warning, Remy Cointreau commented on the guidance reduction being: 60% driven by the US (tougher market conditions and a fiercely promotional environment in US Cognac); 25% by China (slower than anticipated recovery post-Covid) and 15% by RoW (more moderate annual growth is expected in EMEA in a persistently inflationary context). As to Q2 itself, LFL sales at a group level declined -10.8% (co. cons. -8.7%) with the miss driven by the Cognac division. News We highlight that Remy Martin US Cognac volume depletions declined -37.4% in Q2 (cf. -5.5% in Q1) which implies volumes -34.9% below pre-pandemic (cf. +8.1% ahead in Q1). Earnings We revise down our FY24e / FY25e / FY26e EPS estimates by -20% / -13% / -13%. Investment thesis While restoration of market confidence in Remy Cointreau''s US Cognac business will take time, we believe it will come and with it a strong rebound in the shares. Rating and target price We maintain our Outperform rating. Our target price moves from EUR173 to EUR150. 15 questions for management What level of value depletion decline do you assume for your US Cognac business at the top and bottom ends of your revised group FY24 LFL sales guidance?
The weaker than expected performance in China and the worsening situation in the US capsized the Cointreau ship. While a profit warning had been expected, its magnitude caught everyone off guard The historical premium for Remy is now out of the picture and this might be an attractive entry point for the stock
A miss on the street’s expectations and a profit warning for Remy Cointreau. The situation is worse than we had expected.
For the Q2 results, all eyes are likely to be on the company’s outlook. The FY 2024 guidance is unlikely to be reached. However, the consensus has already priced this in. The historical premium for Remy is now out of the picture and this might be an enticing entry point for the stock.
Which company has invested more into marketing compared with pre-Covid than any other Beverages or ''Luxury'' peer? Answer: Remy Cointreau. Which Beverages company is set to grow LFL sales at a sector-leading +9.6% rate (FY25e)? Answer: Remy Cointreau. Which company do we see upside to mid-term (FY30e) profit targets? Answer: Remy Cointreau. Which company is trading at around a multi-year trough relative to Luxury Goods? Answer: Remy Cointreau. Which company are investors circling but fearful to touch? Answer: Remy Cointreau. Investors want firm evidence that the US Cognac business is not structurally impaired. While we have had some encouraging short-term data, the reality is that once a solid longer-term data case can be constructed, the shares will have moved. With the stock having de-rated by c.120% relative to EU Beverages on consensus forward P/E since its pandemic high, we believe that the balance of risk and reward is favourable. We upgrade Remy Cointreau to Outperform While we view risk to H1 consensus EBIT as downside skewed (we are -5% below VA cons), we believe the market will look through this and look forward to a strong inflection in H2. We forecast +106% H2 LFL EBIT growth, putting our FY24e EBIT c.+2% ahead of VA cons. We upgrade our recommendation to Outperform and raise our target price to EUR190 (from EUR157).
Summary of Q124 sales Remy Cointreau Q124 LFL sales declined -35.0%, in-line with consensus expectation (co. cons. -35.6%). The shape of the delivery by division also matched that per consensus expectation: Cognac division LFL declined -44.7% (co. cons. -45.8%) while LandS division LFL declined -11.4% (co. cons. -10.8%). US Cognac value depletions declined -4.5% in Q1 and improved sequentially throughout the quarter with June positive. US Cognac volume depletions declined -5.5% in Q1 (cf. -31.8% in Q4) implying +8.1% growth vs. a pre-pandemic (Q120) base. Remy Cointreau kept its FY24 outlook unchanged. News We highlight that Remy Cointreau expects its group LFL sales growth to remain negative (by single digits) in Q2. Earnings We keep our EPS estimates materially unchanged. Investment thesis In the context of sequentially improving US cognac depletion trends, we are tempted by the relative valuation of the shares but believe risk to consensus H1 EBIT remains downside skewed and therefore remain Neutral. Rating and target price We maintain our Neutral rating. Our target price moves from EUR154 to EUR157. 15 questions for management Relative to a pre-pandemic (calendar 2019) base, your US Cognac volume depletions were ahead by +8.1% in Q1 from being -12.2% below in Q4. What were the drivers of the material acceleration in trend?
Although this Q1 was hardly surprising, the confirmation of the guidance brings warmth to the heart, especially with the confirmation of a sharp rebound in the US from Q3. The positive US value depletions in June and China back on track reinforce our belief that the FY guidance is attainable.
Summary of FY23 results FY23 LFL Current Operating Profit (COP) at Remy Cointreau grew +16.2% (c.+180bp ahead of co. cons) and adjusted net profit was a c.+2% beat. FY group COP margin increased +230bp to 27.7% (co. cons 27.4%). Organic COP margin expansion of +140bp was driven by gross margin expansion of +260bp and distribution / other of +10bp, partially offset by AandP investment of -130bp. From a divisional perspective, Cognac LFL COP grew +14.7% (co. cons +14.1%) while Liqueurs and Spirits division LFL COP grew +18.1% (co. cons +10.9%). Remy Cointreau announced a proposed dividend of EUR3.0 per share (made up of an EUR2.0 ordinary dividend and an EUR1.0 exceptional dividend). News We highlight that Remy Cointreau expects its group Q124 LFL sales to decline by at least mid-30s. Earnings We revise our FY24e / FY25e / FY26e EPS by c.+2%. Investment thesis We are tempted by the relative valuation of the shares but are mindful that it will likely not be until January-2024 (Q324 sales) that Remy Cointreau proves it is able to return the group to positive LFL sales growth. Rating and target price We maintain our Neutral rating. Our target price moves from EUR167 to EUR157. 15 questions for management Your FY23 gross margin reached 71.6% at FY19/20 scope and FX. Given that you continue to target a 72.0% gross margin in FY30e, should we expect minimal gross margin expansion in the intervening years?
Despite the new impressive results, it is the outlook for the US market that dominates the scene, reflected by a decrease of approximately -5.0% in the stock variation. The first-quarter revenue is expected to decline by 30% to 40%. Consumers are not hesitating to switch to less premium products, as Tequila continues to encroach upon the market share of cognac.
Making sense of US Cognac With the dust having settled after Remy Cointreau''s warning FY24 sales / profits last Friday, with this report we try to make sense of what''s happening in US Cognac. We updated estimates/TP last week. We focus on sell-out trends While high US distributor inventories (5-6 months of depletions) lead us to forecast un-Staples like near term revenue trends (-27.5% group LFL in Q124e), ultimately so long as end demand remains intact this is simply an issue of timing. We therefore analyse the available high frequency US sell-out data (US IRI off-trade scanner data, Numerator, and NABCA) to try to gauge end-consumer demand. The bull case: US Cognac off-trade sell-out trends appear to have stabilised The bull case: the shares are relatively cheap in a historical context (even after consensus reflects the warning); China provides upside risk and the bad news on US Cognac has now been cleared out. Most importantly, we note US Cognac industry off-trade sell-out volumes have now returned to pre-pandemic levels and have been broadly stable (vs. a pre-pandemic base) for the past 6 quarters. The bear case: the near-term issues in US Cognac are more structural The bear case: the near-term issues in US Cognac are symptomatic of end-demand for Cognac being eroded by consumers switching to Tequila and Bourbon. As US consumer budgets comes under further pressure, the unwind of Remy Martin''s high US distributor inventories will be more prolonged than expected, not helped by the level of promotional activity by peers. Conclusion: we are tempted but believe a near-term material re-rating will prove elusive While visibility is not great, from the data that we have we believe end-demand for the US Cognac business has not materially deteriorated. We are therefore tempted to turn more positive on the stock based on its relative valuation. However, we are mindful that it will likely not be until January-2024 (Q324 sales) that Remy Cointreau...
In the face of normalization and a slowdown in consumption in the United States, Cognac experienced lower-than-anticipated trading during Q4 23. The market’s overreaction is attributed to the FY 24 outlook.
Summary of Q4/FY23 sales Remy Cointreau Q4 LFL sales grew +10.2% (modestly ahead of co. cons at +9.1%) with weaker than expected growth in Cognac (+2.9% LFL vs. co. cons. +5.0%) more than offset by strength in the LandS division (+26.2% LFL vs. co. cons +18.4%). Q4 value depletions in the US declined by very strong double-digits but grew by mid-teens in China (with March at +700%). While Remy Cointreau''s FY23e COP guidance remains unchanged, its new FY24e outlook for stable LFL sales growth and COP margin is materially below consensus expectation. News We highlight that Remy Cointreau expects its US Cognac business to achieve positive value depletion growth in FY24e. Earnings We revise our FY23e / FY24e / FY25e EPS by -3% / -16% / -13% reflecting Remy Cointreau''s outlook commentary. Investment thesis Our FY24e estimates will likely be broadly in-line with where consensus numbers land post-FY23 sales, and we struggle to envisage a re-rating in the shares until fears over extended declines in US Cognac have passed. Rating and target price We maintain our Neutral rating. Our target price moves from EUR172 to EUR167. 15 questions for management What is your best estimate of where end consumer volume demand is trending vs. pre-pandemic levels for the different qualities of your US Cognac business and the wider category in the US?
Summary of Q323 sales Q3 LFL sales at Remy Cointreau declined -6.0%, slightly ahead of co. cons at -6.7% and broadly in-line with the mid-to-high single digit LFL decline guided by the company at H123 results. LFL sales in the Cognac division declined -11.0% (co. cons -11.4%) with Remy Cointreau commenting on mid-teens growth in Mainland China more than offset by a very strong double-digit decline in the US. LFL sales in the Liqueurs and Spirits division grew +10.1% (co. cons +8.9%) driven by mid-teens growth in the US. News We highlight that Remy Cointreau expects to experience a group LFL sales decline in Q124 and H124 driven by continued normalisation in US cognac consumption trends and the phasing of comps. Earnings We revise our FY23e / FY24e / FY25e EPS by c.0% / c.-4% / c.-3%, driven by a combination of updated FX and revised LFL growth assumptions. Investment thesis Our FY23e/FY24e estimates are broadly consensual, and we struggle to envisage a re-rating in the shares until fears over slowdown in US Cognac have passed. Rating and target price We maintain our Neutral rating. Our target price moves from EUR175 to EUR170. 15 questions for management What gives you confidence that the increase in penetration that the Cognac category experienced in the US through the pandemic will not revert to pre-pandemic levels?
The Q3 numbers were better than expected but the US is once again worrying. Last year’s exceptional levels justify a slowdown, but how far down do we really need to go before we become concerned?
Summary of H123 results Remy Cointreau reported H123 LFL COP growth of +27.2%, a +340bp beat vs. company consensus expectation (+23.8%). Strength in the Cognac division, which saw LFL COP growth of +35.7% (co. cons. +23.9%) was partially offset by a LFL COP decline in the Liqueurs and Spirits (LandS) division (-27.5% vs. co. cons. +18.9%). Within LandS we note that AandP as a % of sales increased by 760bp YOY. Group adj. net profit was c.+9% ahead of consensus expectation with the gap vs. the beat at the EBIT level (Group COP was +4% ahead) driven by tax (lower tax rate in France) and finance costs. News We highlight that driven by the expected normalisation of cognac trends in the US, Remy Cointreau expects its Q3 LFL sales to decline by mid-to-high single digits followed by a rebound to positive growth in Q4. Earnings We revise our FY23e / FY24e / FY25e EPS by c.+3% / c.+1% / 0%. Investment thesis We believe risk on consensus LFL profit expectations is now more evenly balanced than it was and struggle to argue for a re-rating at Remy Cointreau. Rating and target price We maintain our Neutral rating. Our target price moves from EUR172 to EUR173. 15 questions for management What level of AandP investment (as % of sales) do you believe is most appropriate for your business over the mid-term?
Summary of Q223 sales Q2 LFL sales at Remy Cointreau grew +16.2%, comfortably ahead of company consensus expectation (+14.3%). The beat was driven by both the Cognac (LFL sales +15.6% vs. co. cons. +13.2%) and the Liqueurs and Spirits divisions (LFL sales +22.2% vs. co. cons. +19.3%). Within Cognac, LFL sales in North America declined by low-single digits in Q2 (impacted by the decline in US VSOP) while in Mainland China LFL sales grew by mid-teens in H1 (driven by very strong double-digit growth in Q2). News We highlight that Remy Cointreau expects limited LFL sales growth in H223 characterised by a mid-to-high single digit decline in Q3 before a rebound back to growth in Q4. Earnings We revise our FY23e / FY24e / FY25e EPS by -3% / +1% / +1%. Investment thesis We believe risk on consensus LFL profit expectations is now more evenly balanced than it was and struggle to argue for a re-rating at Remy Cointreau. Rating and target price We maintain our Neutral rating. Our target price moves from EUR199 to EUR172 (driven by an increase in our WACC, which is in-turn is driven by an increase in our risk-free rate assumption). 15 questions for management You are targeting a mid-term (FY30) EBIT margin of 33.0% at FY19/20 FX / scope. Please could you update us as to what this target implies at current FX / scope?
It seems that, when one’s valuation is at a premium to peers, the slightest slip-up can be very costly. The market sanctions cautious statements that surprise no one but themselves.
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