Pernod Ricard: “Revenge Conviviality” Hangover Ending After FY24

Company Update (RI FP) (Buy): Shares are near 2020 trough; FY24 results point to a downturn that is cyclical and should reverse in FY25.

Highlights

• Sales fell 1.2% organically in FY24, made worse by U.S. inventory.

• China is just 10% of sales; India and Europe ex-Russia grew.

• Group sales are expected to grow in FY25, and did in Q4 FY24.

• Shares are cheap at 16.6x FY24 EPS and a 3.6% Dividend Yield.

• At €131.15, we see a 66% total return (20.5% p.a.). Buy.

Introduction

Pernod Ricard (“PR”) released FY24 (ending 30 June) results yesterday (August 29). Shares finished the day up 2.0% but have fallen back today, which means they are ~26% lower than 5 years ago and near their 2020 COVID trough:

Pernod Ricard Share Price (Last 5 Years)

Source: Google Finance (30-Aug-24).

Our “Select 15” model portfolio has a mid-sized position in Diageo (expanded in January), Pernod Ricard’s close peer, as well as small positions in more U.S.-focused Brown-Forman (initiated in June) and premium mixers company FeverTree (initiated in July). We have similar positions in real life and a sub-1% position in Rémy Cointreau. We are long-term bullish on Spirits stocks and have sought to take advantage of what we see as a cyclical downturn by gradually building up our position since 2023, but we have been too early and our holdings are currently showing moderate losses.

Our investment case on Spirits stocks has the following key components:

• The Spirits industry has long-term structural sales growth and natural margin expansion.

• The recent downturn is cyclical, with its P&L impact magnified by channel destocking.

• Companies are not materially over-earning now, and valuation is cheap by comparison.

As with Diageo’s FY24 results (released on July 30), we believe Pernod Ricard’s FY24 results are consistent with all these views, especially in terms of the following:

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