Company Reports

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard reported a first-half fiscal 2024 performance that was very close to our forecasts, but the company underperformed close peer and wide-moat-rated Diageo, which posted an organic sales decline of 0.6% in the same period, lowered its guidance for the rest of the year, and reduced its share repurchase program. The market reacted positively to the report, however, with the stock gapping up in early trading after the release, most likely due to management reiterating its medium-term revenue growth guidance of 4% to 7%. We will lower our near-term estimates, but this will not impact our EUR 185 fair value estimate or our wide moat rating. Both Pernod and Diageo are trading below our estimates of intrinsic value, but we believe the cyclicality of the category means the stocks are unlikely to provide the defensive qualities many investors seek in investments on consumer staples equities.

Pernod Ricard reported a decline in volume in the first quarter, but guidance for growth in the full year suggests that management believes underlying demand remains reasonably strong, and that growth will return once Pernod cycles a strong performance in the first half of last year. We reiterate our wide moat rating and EUR 185 fair value estimate and there was around 11% upside to our valuation at the close of trading on Oct. 19. However, industry volume of spirits, which sell at a higher price point than some other alcoholic beverages such as beer and wine, have historically been more cyclical than other consumer product categories, so developments in the global macroeconomy will be key to unlocking that valuation upside in the next year or so.

Pernod Ricard reported a respectable performance in fiscal 2023, with revenue in line with our expectations on an organic basis, but management's comments that the U.S. and China are off to a slow start in fiscal 2024 is likely to cause investors some concern about the durability of the strength of the consumer. On a positive note, margins remained robust. We have slightly lowered our growth forecasts for these two regions for next year, but this has an immaterial effect on our EUR 185 fair value estimate, and as the slowdown is cyclical rather than structural, nothing in the company's update impacts our wide economic moat rating. The market value of the shares is now close to our fair value estimate, as at the close of trading on Aug. 31, and while we think Pernod is a very strong franchise with more superior price/mix growth drivers than most of the consumer products group, we recommend waiting for a more attractive entry point before building a position.

Pernod Ricard reported slightly weaker third-quarter sales growth than we had anticipated, with a broad-based slowdown, but this has no impact on our long-term view, and we make no changes to our wide moat rating and EUR 185 fair value estimate. We consider Pernod to be fully priced, and any wobble by the consumer would present downside risk, but with a strong fourth quarter, the company still seems likely to meet our full-year forecasts.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard continued the trend of beverage large caps reporting better-than-expected performance, with Europe being the standout region in the first half of fiscal 2023. We are raising our medium-term margin assumption and our fair value estimate to EUR 185 per share from EUR 167 because of the valuation impact of the strong performance of the year, and because we think medium-term margins may be structurally higher than we had previously assumed. Nevertheless, with the stock trading at 20 times fiscal 2024 earnings, we believe Pernod is currently slightly overvalued.

Pernod Ricard posted strong first-quarter 2023 sales that were again slightly ahead of our estimates and that support our thesis that the company is comfortably passing through enough price increases to offset cost inflation. We reiterate our EUR 167 fair value estimate and wide moat rating. First-quarter organic sales growth of 11% was very strong, but it was boosted by the continued reopening of markets in Asia, where revenue grew 20% organically. Sales in Europe (up 4%) and the Americas (up 6%) were more in line with our long-term growth assumptions, and we think sales could remain at a slightly subdued level as the impact of higher mortgage rates, energy prices, and broader inflation begin to bite. We remain concerned that operating profit growth could slow next year, and with the shares trading at 19 times fiscal 2023 earnings, the pullback in the market price means the shares are now fairly valued.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard posted strong fiscal 2022 results that were slightly ahead of our estimates, and confirmed that the company is comfortably passing through enough price increases to offset cost inflation. We reiterate our EUR 167 fair value estimate. Full-year sales grew by 17% organically, slightly above both our estimates and Pitchbook consensus forecasts, and well above what we consider to be a normalised long-term growth rate in the mid-single digits. These results demonstrate Pernod's pricing power, a key source of our wide economic moat rating. However, we are concerned that operating profit growth could slow next year and with the shares trading at 21 times fiscal 2023 earnings, we think more attractive risk/reward profiles can be found elsewhere in the consumer staples sector with more out-of-favour stocks such as Unilever and AB InBev.

We are maintaining our EUR 167 fair value estimate of Pernod Ricard following the release of decent third-quarter sales numbers that showed most markets outside China and Eastern Europe continue to rebound as expected. We have tweaked our estimates for the rest of the year slightly to reflect continued price increases to offset inflation, but this has no impact on our valuation. Our forecasts are roughly in line with updated guidance of 17% organic operating profit growth, though we think inflation, continued lockdown measures in China, and the ongoing conflict in Ukraine present elevated risk to near-term earnings. Against that backdrop, we think Pernod's shares look fully priced.

We are lowering our net revenue and gross margin estimates for the European beverage companies under our coverage to reflect the expected impact of the conflict in Ukraine. The impact on our valuations is minimal, however, and the only fair value estimate we are lowering is that of Carlsberg, from DKK 965 to DKK 945. Following the impositions of sanctions, most of the beverage manufacturers have temporarily ceased exporting products to Russia, and although this has made headlines, exports into Russia represent a small segment of the market.

Pernod Ricard reported another strong performance in the first half of fiscal 2022, with impressive sales growth in Europe that was above our estimate. We are raising our fair value estimate to EUR 167 from EUR 160 after increasing our revenue growth assumption in the second half of the year (EUR 5 of the valuation increase), as well as the impact of the time value of money (EUR 2). These results show the strengths of Pernod's categories. Low price elasticity in spirits makes Pernod better positioned than most large cap consumer product manufacturers to navigate the current input cost inflation. However, the stock seems priced for uninterrupted growth, and with spiking inflation likely to eat into disposable incomes over the next year or two, we do not believe the shares offer investors an attractive risk/reward profile at current levels.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard continued its momentum from the second half of the last fiscal year into the first quarter of fiscal 2022, with strong revenue growth that puts the company on track to meet our full year expectations. We are reiterating our wide moat rating and EUR 160 fair value estimate. We think a lot of the ongoing strong performance is priced into the stock, but we acknowledge that while consumers have cash in their pocket, volume growth and favourable mix could continue to drive this impressive revenue growth for several quarters to come. Although no margin data was released this quarter, we believe Pernod's 60% gross margins and strong price/mix make it one of the companies that should best be able to offset the current inflationary pressures.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.

Pernod Ricard continued its momentum from the third quarter into the fourth quarter of fiscal 2021, with revenue topping our estimates by about 5%, offset by a slightly lower gross margin than we had expected due to rising raw material costs. Reported EBIT of EUR 2.4 billion was in line with our estimate, and we are reiterating our EUR 145 fair value estimate.

Pernod Ricard reported strong third-quarter sales data and looks on track to at least meet our full-year growth expectations. We are maintaining our estimates but raising our fair value estimate to EUR 145 from EUR 143 after rolling our model. After a further rerating in the stock year to date, we consider Pernod to be overvalued. This was a decent quarter, and the stock may well continue to have momentum as the on trade reopens and consumers release the trillions of U.S. dollars of excess savings they have accumulated during lockdown. We think we have adequately captured that in our estimates, however, and think the market is projecting favourable market conditions too far into the future.

Pernod Ricard, formed in 1975 through the merger of two French aniseed liqueur makers by the same names, has established itself as the world's number-two distiller through a series of acquisitions. Although the industry is fairly concentrated (we estimate a four-firm concentration ratio of 0.6, above many other fast-moving consumer goods categories, including the global brewing industry at 0.5), we believe there is more consolidation to come. Outside of the top five firms, the industry is highly fragmented, with local players often dominating in niche product categories or narrowly defined geographies. These firms present a new wave of merger opportunities for the industry consolidators--including Pernod--to strengthen their presence in emerging markets.