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Rémy Cointreau's Profits Boosted By China's Thirst For Cognac

By Steve Wynne-Jones
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Rémy Cointreau's Profits Boosted By China's Thirst For Cognac

Rémy Cointreau said its annual operating profits rose by a stronger-than-expected 14.1%, helped by cost controls and strong demand for its premium cognacs in China.

The maker of Rémy Martin cognac and Cointreau liqueur said its strategy of selling higher-priced spirits to boost profit margins was delivering strong results, and the company also raised its medium-term profitability forecasts.

It added that it aimed to increase operating profits on a like-for-like basis in the current financial year that started on 1 April.

Operating profits for the year ended 31 March rose to €236.8 million. This translated into a margin of 22% of sales at constant exchange rates and scope, marking a gain of 1.3 percentage points from the previous year.

This was above the consensus of analysts' forecasts for profits of €235.5 million, and a prediction for organic profit growth of 12.9%.

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Share Price

Rémy Cointreau's shares fell back from recent record highs earlier this month, as concerns over the stock's valuation and a flat dividend offset the company's higher profits and bullish outlook.

Rémy Cointreau was down 2.3% at €124.40 in early session trading, although the stock remained close to its earlier record high of €131.30 reached on 5 June. The stock is still up 7% so far in 2018.

Flat Dividend

Rémy Cointreau achieved higher-than-expected annual profits and predicted more earnings growth this year, but it kept its dividend flat.

"Dividend only flat - lacking confidence?," wrote one trader in a note.

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Rémy Cointreau's stock market valuation is closer to that of many luxury good stocks, rather than food and drinks stocks.

Its shares, up some 10% so far in 2018, trade at 38.6 times on their 12-month forward earnings (P/E), compared to P/E ratios of 23.4 for Pernod and 21.9 for Diageo.

Forecasts

"Our forecasts and target price are under review, but we anticipate maintaining our 'Sell' rating primarily on valuation," wrote analysts at brokerage Investec.

"With underlying earnings only growing in the low teens (versus high single-digit/low double-digit for the sector), and a more volatile business model than other Staples companies, we do not feel such a high premium is warranted," added Investec.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.

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