Rémy Cointreau: Likely Cheap, But Not Because of China

Company Update (RCO FP) (Buy): Shares are rebounding from a multi-year low; we like the stock but disagree with the reason.

Highlights

• Shares rebounded 13.6% this week following a new stimulus in China.

• P/E is ~22x on FY19 EPS; FY24 EPS were 14.7% higher as reported.

• We believe RCO under-earned in FY24, and U.S. was the main problem.

• But sales fell 15.6% in Q1 FY25 and may not resume growing until FY26.

• With shares at €70.50, we see a total return of 68% (23.3% p.a.). Buy.

Introduction

We revisit our Buy rating on Rémy Cointreau (“RCO”) after shares rebounded by 13.6% this week (September 23-27), part of a rally in China-related stocks following news of a new government stimulus package.

Even with this week’s recovery, RCO shares have fallen by 39% in the past year, including by 17% in the 4 months since we last published research on RCO on May 30:

RCO Share Price (Last 5 Years)

Source: Google Finance (27-Sep-24).

RCO has been a <1% holding for us in real life, and was ever part of our “Select 15” model portfolio. We first wrote about it with a Buy rating in December 2019, though we published no research between June 2020 and May 2023.

We believe RCO shares are attractively priced, but the news on China will have little impact on the investment case. RCO may ultimately generate outsized rewards, but this requires confidence in the Cognac category and patience. Buy.

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