Analysis - Remy Cointreau in firing line as China slowdown hits spirits
Remy Cointreau has high exposure in China
In a conference call late last week, Pernod warned that its spirits performance in China in the first quarter of 2013 will suffer due to a clampdown on inter-governmental gift-giving and banquets. The French firm, whose Martell Cognac brand has been performing well in China in recent years, admitted last week that the move, which came into force on 21 December, was part of the reason for its “soft” performance in China in the calendar year so far.
However, Remy Cointreau is also likely to be hit by the situation, due to its exposure in China through its Remy Martin Cognac brand, Nomura said in a note to clients today (25 March).
The analyst noted that, in 2012, around 33% of Remy Cointreau's sales came from Asia, with China accounting for an estimated 30% of full-year EBIT.
"We now assume that Q4 2012 Cognac revenue (for Remy Cointreau) will be flattish," Nomura said. "Although total Cognac industry volumes appear to be in growth in the quarter and there will be some benefit from prior-year pricing, we see negative mix due to the decline in sales (in the super-premium segment)."
Nomura also said that this year will be "a quiet season for gift-giving and banquets until the mid-autumn festival".
The firm subsequently lowered its target price today, from EUR88 per share to EUR75, while also cutting its rating to 'Reduce' from 'Neutral.
Sales of Remy Martin in China are expected to grow in line with Remy Cointreau's long-term model for Cognac from the end of this year, Nomura forecast. The spirits firm is targeting a mid-single-digit lift in volumes from the country in the longer-term.
After Pernod's conference call on Thursday, Remy Cointreau's share price fell markedly. At 13:56 CET today, shares were down by 2.07% at EUR89.99.
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