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Moet Hennessy's sales have coming storming back in 2010 on the crest of a foaming Champagne wave. While you wait for the inevitable speculation on Diageo's impending deal to buy the division, here's our take on the market reaction to the Moet & Chandon maker's results.

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There were probably a few corks popping at LVMH headquarters last night as the group prepared to reveal that renewed demand for luxury goods pushed the group's sales and profits up by 19% and 73% respectively in 2010. The wine & spirits arm, Moet Hennessy, saw sales rebound to pre-crisis levels - that is, above the levels of 2008.   

Investors, however, have kept their Champagne on ice today (4 February). LVMH was the biggest faller out France's top 40 companies listed on the Paris stock exchange. Its share price for the day fell by 3% up to 14:30 local time after operating profits missed expectations.

Reuters reported that the profits were "solid", but "not a big surprise". Moet Hennessy's profits rose by 22% for the year, but they struggled in the second half of the year and did not surpass the EUR1bn mark as they did in 2008.

Several analysts remained positive about the group's prospects. CM-CIC Securities reaffirmed its 'buy' rating on LVMH shares, with a target price of EUR146 per share. LVMH sat at EUR113 per share today.

Some observers raised concerns about a slowdown in the final quarter of 2010. Traditionally, this is the boom-time for Champagne, while rival Remy Cointreau has already reported that Chinese consumers used this period to stock up on expensive Cognac ahead of Chinese New Year. Good news for Moet & Chandon and Hennessy, then, surely?

In the event, Moet Hennessy sales rose by just 3% in the fourth quarter, versus a 19% increase for the year.

Analyst group Sanford Bernstein said that the division's loss of momentum probably reflected a tougher comparative figure with the fourth quarter of 2009. Bernstein sought to calm fears that the fourth quarter figure might be a warning of things to come from Pernod Ricard in its own results in two weeks.

"We believe that the Q4 slowdown is MH-specific and should not be a cause for concern amongst Pernod investors," said Bernstein. On Cognac specifically, it said: "[Pernod's] Martell is more weighted to high growth China than Hennessy, which has a bigger business in the lower-value, lower-growth US."

The pace of growth may slow in 2011, but Moet Hennessy's prospects continue to look solid. Champagne sales in general have gained a firmer footing over the last 12 months, while demand for Cognac has regained ground in the US: Super-premium Cognac sales rose by 10% to US$315m in 2010, according to the US Distilled Spirits Council.

The Wall Street Journal's Renee Schultes argued that "the bears should back off" and that demand for luxury goods will continue to rise in 2011, even if not at the stellar levels of 2010.

It would be unfair to avoid mentioning mergers and acquisitions. Of course, there remains the possibility that Diageo will seize the 66% of Moet that it doesn't already own, although it may have to slip some form of mind-altering drug into Bernard Arnault's tumbler. There is still no sign that the LVMH chief wants to sell up.

Arnault reiterated today that LVMH's accumulation of a 20% stake in rival Hermès is "passive". He said the group wants to "support the management and the family shareholders". There has been speculation that a takeover of Hermès could prompt a shift on the Moet Hennessy front. So far, though, it's a case of 'as you were'.


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