Analysis - Pernod Ricard's reasons to be cheerful
Pernod Ricard will release its half-year results next month
The end of the tough times is on the horizon for Pernod Ricard, finally, with one analyst claiming the company has five reasons to be upbeat about the year ahead.
In the company's latest results, organic sales in the three months to the end of September dipped by 2%, with full-year profit growth guidance set at between 1% and 3%. While Pernod was hampered in 2014 by currency exchange headwinds, the group has seen its operations in China – specifically Martell Cognac – continue to struggle, thanks to the Government's clampdown on extravagant spending and the country's on-trade.
But, in a note to clients yesterday, analysts at Bernstein Research in London forecast a better atmosphere in China, along with a softer hit from ForEx in fiscal-2015.
“Since September,” the analysts write, “we have seen volume depletions turn positive on Cognac in China (+4% in Q1 fiscal-2015) and the rate of decline of Chinese net sales slow (-9% in Q1 fiscal-2015,compared to -38% in Q4 fiscal-2014).”
On ForEx, Bernstein noted Pernod's 9% fall in EBIT in fiscal-2014, but, “at current spot rates, we expect ForEx tailwinds in F15, worth approx 3% of sales and 6% of EBIT”.
But, that's not all. The analysts flagged three other bright spots for Pernod. In India – where “Diageo will have its hands full for the next couple of years” sorting out its United Spirits unit. For Pernod's Irish whiskey brand Jameson – for whom Bernstein “expects a tentative recovery in previously depressed markets such as the UK and Spain” - and Pernod's Allegro project, which will “reduce SG&A cost inflation by around EUR100m as well as permitting some targeted reinvestment in A&P”.
Shareholders appear to concur with the belief that a positive 2015 is on the cards for the group. “Pernod Ricard's stock has risen 12% since the start of Q4 calendar-2014, including a 5% rise since the start of this year,” Bernstein notes.
The company's next set of quarterly results, expected on 12 February, should shed some light on whether the analysts are right to give it the thumbs-up.
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