Rémy Cointreau: 26% Down Since Start of 2022 on U.S. Cyclical Fears

Company Update (RCO FP) (Buy)

Highlights

• RCO’s premium+ portfolio has strong structural growth

• Organic sales growth was 43.6% in FY19-23, with 10.1% in FY23

• But U.S. demand is normalizing and expected to fall in FY24

• FY24 outlook implies a flat EPS and we believe P/E is ~30x

• We see a 10% IRR over time, driven by EPS growth. Buy

Introduction

We revisit Rémy Cointreau (RCO) after shares have fallen back 26% since the start of 2022, including a decline of 14% in the two days since it released its FY23 (ending March 31) sales update on April 28:

RCO Share Price (Last 5 Years)

Source: Google Finance (12-May-23).

Investors now fear a cyclical downturn in RCO’s business, particularly with demand in the U.S. normalizing downwards from pandemic highs. Sales grew organically by more than 10% in both Q4 and full-year FY23, but U.S. Cognac depletions fell by a “very strong double-digit” in value during Q4. FY24 guidance is for “stable organic sales” and a stable EBIT margin, but with a “strong sales decline” in H1 including “a very str…