Pernod Ricard: Upgrade To Buy As Spirits Sales Recovery Continues

(Preview) Rating Change (RI FP) (Upgrade to Buy)

Summary

• We are upgrading Pernod Ricard to Buy after shares fell 13.5% from their peak, back to the level at our downgrade in June 2021.

• Pernod Ricard is a top global Spirits company and is benefiting from structural trends, including premiumization and rising affluence.

• Pernod Ricard targets 4-7% sales growth and 50-60 bps operating margin uplift annually, which implies operating profit growth of 6-9.5%.

• As of H1 FY22, EPS has already grown 20% above its pre-COVID level in two years, and recovery is still continuing, especially in Travel Retail.

• With shares at €187.90, we expect a total return of 53% (14.4% annualized) by June 2025. The Dividend Yield is 1.7%.

Introduction

We are upgrading our rating on Pernod Ricard SA ("PR") to Buy after shares fell 13.5% from their January peak.

We downgraded PR to Hold in June 2021 on valuation grounds. Prior to that, we had had PR Buy-rated since August 2019, gaining 19.0% (in EUR, including dividends) in just under two years. Since our downgrade, PR sha…