HEALTHY COGNAC SALES MAKE GOOD RESULTS FOR REMY COINTREAU

Remy Cointreau logo

Source: Jefferies International Limited

Edward Mundy

September 27, 2018

We expect a continued strong performance in the Cognac division (c.80% profits) and expect 2QE group org sales +9.0% (vs 1Q 5.9%). We like Remy's category exposure and see upside as the CEO rolls out her vision for the co as a super-premium business. While we like Remy, trading at 29.9x cal 2019 PE, shares need upgrades to perform. We remain at HOLD.

What's new? Remy reports 1H sales on 17 October. We expect 1H org sales +7.6% with 2Q +9.0% vs 1Q 5.9%. The drivers of the acceleration in 2Q, we believe, are continued robust cognac demand (we model 2Q cognac org sales +12% vs 1Q +11.1%) with benefit of easier comps, as well as some positive impact from technical effects in Partner Brands. For full details of our expectations, refer to detail within this report.

Cognac (67% sales / 81% profits) - likely to remain robust. We model 1H cognac org growth +11.6% with 2Q +12% vs 1Q +11.1%. Within this, we expect US and Europe to be a bit stronger vs 1Q. Whilst Asia depletions (sell-out) momentum is likely to be unchanged vs 1Q (vols solid DD, sales strong DD), we believe shipments (sell-in) will be more normalised. In 1Q, China cognac shipments ran modestly ahead of depletions with some inventory replenishment after the strong CNY; we expect shipments to match depletions in 2Q.

EXPECTED GROWTH OF SHARES FOR REMY COINTREAU

Remy Cointreau logo

Rémy Cointreau (RCO FP): Premium Growth but Premium Valuation

Source: Jefferies International Limited

Edward Mundy, ACA

June 11, 2018

Rating HOLD

Price Target $120.00 (from $105.00)

Price $122.90

Key Takeaway

We like Remy's category exposure (80% cognac) and see upside as the CEO rolls out her vision for the company as a super-premium business. Fundamentals in the Cognac Division remain strong which should support EBIT growth 12-13% in F19. While we like Remy, trading at 33.3x CY19E (vs staples 18.9x), the shares need upgrades to perform. Remain at HOLD.

Attractive category exposure... With 80% of the business cognac, rising further if other brown spirits Metaxa, St Remy, Mount Gay, Islay Spirits are included, Remy offers a highly attractive brown spirits portfolio that is well positioned to capitalise on the spirits premiumisation trend.

...with a vision as a super-premium business... Remy does not have the financial superpower to compete head-on with spirits majors. Instead, the business will borrow from the CEO's experience in luxury goods, relying more on digital and direct to consumer sales than traditional FMCG marketing.

Premiumisation strategy on-track - co is making good progress with the premiumisation model with 53% of the portfolio now over $50 a bottle vs 45% in F15. The move to 60%-65% over the next three to five years should be feasible given that 80% of sales are over $40. Given that it is unlikely that Cointreau can be sold for >$50 a bottle, the conversion of this 27% of the portfolio ($40-$50 a bottle) is likely to take place across cognac (1738), gin (Botanist), Mount Gay (xo) and higher variants of Metaxa.

Margin outlook - positive trends. Given the stronger than expected margin growth in F18, the company has raised its margin guidance to 240-300bps F18-20E. With 130bps captured in F18 (22.0%), this argues for between 50-85bps org margin expansion p.a. F19 and F20. Although the company is investing ahead of growth in A&P, margins should be driven by continued GM expansion given the company's premiumisation strategy.

What are the risks? Key risk for an investment in Remy is concentration risk in cognac & that consumers move away from cognac towards other brown spirits. However, we see an attractive outlook for the cognac industry with scarcity of inventory helping to drive a robust pricing environment.

What's changed? We increase F19 EPS c2% and our price target to $120 (from $105) to reflect the upgrade and the roll-forward of our DCF by one year.

86% OF REMY COINTREAU'S PROFITS COMES FROM COGNAC

Remy Cointreau's profits boosted by China's thirst for cognac

Source:

https://www.rte.ie/

7 Jun 2018

Remy Cointreau has reported higher-than-expected annual profits, helped by strong demand for its premium cognacs in China, and predicted more earnings growth this year.

The maker of Remy Martin cognac and Cointreau liqueur said its strategy of selling higher-priced spirits to boost profit margins was delivering strong results.

Remy has been focusing on selling spirits priced at $50 a bottle or more, as part of a strategy that has benefited from a rebound in Chinese demand.

Remy's strategy has differed from that of rival Pernod Ricard, which has launched less expensive brands in China.

The private consumption of drinks and spirits has been recovering in China, offsetting the impact from the country's anti-corruption crackdown over the past few years which had hit sales of premium brand drinks.

Remy Martin cognac, which makes 86% of group profits, achieved a margin of 26.9% of sales, representing an organic increase of 1.3 percentage points.

Remy Cointreau's stock market valuation is closer to that of many luxury good stocks, rather than food and drinks stocks.

Mixology and 2012 Cointreau Mixology Series

Cointreau Bottle

Mixology is becoming a big word in the world of spirits and consumers. Cocktails and cocktail making is the old way of thinking. Kind of like talking about cooking  versus cuisine. Mixology is very much about caring about the ingredients. That is the focus is on the selection and sourcing of the ingredients. The creativity of what you are making is also very important. Mixology is artistic while cocktail making is much more technical. And Bartending? Well it is about running a bar!

However, the technique is primary and the recipe is secondary.

Mixology has a great deal in common with making cognac in the sense that cognac makers care very much for the balance and the consistency of the beverage.

This year Cointreau is organizing Cointreau Mixology Series, these are exclusive cocktail-making lessons with some of the top mixologists in the USA, such as New York and Los Angeles. See here for LA for instance.

Each class includes an education on two signature Cointreau cocktails — the original margarita and a classic sour cocktail with a modern twist — plus a postlesson reception to enjoy your cocktails with a spread of appetizers. Guests will leave with gift bags full of Cointreau goodies to practice bartending at home.

• One-hour mixology lesson, including two signature Cointreau cocktails.

• One-hour postlesson reception with cocktails and hors d’oeuvres.

• Cointreau gift bag.

• All the knowledge necessary to mix cocktails at home.

In the United Kingdom Cointreau is even more adventurous by offering private mixology lessons in the comfort of your home. Amazing isn't it!

"A professional Cointreau mixologist will arrive armed with everything needed for a pop-up cocktail-making master class including sumptuous orange liqueur Cointreau, additional ingredients and cocktail shakers. Leading with a lesson on how to shake the perfect Cointreaupolitan, the in-house mixologist will teach you all about the history of cocktails and how to make the perfect aperitif for a night in. You’ll learn how to make delicious and contemporary cocktails with orange liqueur Cointreau at their heart including the Cointreau St Clements, the Cointreau Cobbler and the Cointreau Margarita. At the end of the masterclass, exclusive limited edition gift bags will be distributed containing all you need to recreate the exquisite cocktails again and again."   Cointreaurendezvous.co.uk here .

Sources: Photos www.cointreau.com