(BFM Bourse) – Rémy Cointreau shares ended up more than 5% on Friday, reacting to the announcement of the takeover of Courvoisier cognac by Italian Campari. In a market in full difficulty, this operation delivers a message of confidence in the fundamentals of cognac.
The 2023 financial year was clearly not a year to pop the champagne for spirits groups. Particularly for Rémy Cointreau, which has seen its share price fall by 28.2% since the start of the year.
The owner of Rémy Martin cognac is suffering from weak demand in the United States, where consumption is normalizing and significant destocking is occurring. Additionally, the company faces heavy promotional intensity from its competitors.
“The stock has been penalized this year by two effects. First, the consensus has sharply revised expectations for the financial years ending in 2024 and 2025, by around 25%. Second, since September-October, the market has doubts about the viability of the growth of a cognac player”, explains a financial intermediary.
However, a significant external growth operation has brought a message of confidence about the prospects of cognac.
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Strengthening in China
Last week, the Italian Davide Campari-Milano (or simply Campari), listed in Milan, announced the acquisition of the French Courvoisier. Founded in 1828, Courvoisier is one of the members of the “big four” of cognac, with Rémy Martin, Hennessy (LVMH) and Martell (Pernod Ricard). This takeover project externalizes a company value of 1.22 billion euros.
The operation has several virtues for Campari, owner of the famous Aperol aperitif. Firstly, this acquisition strengthens the presence of the transalpine group in two key markets, namely the United States (around 60% of Courvoisier sales) and China (9%), two countries which currently represent less than 30% of Campari sales, according to Stifel. In addition, the operation should result in an accretion of earnings per share of 1% to 3%, according to Deutsche Bank.
Beyond Campari’s point of view alone, this acquisition sends a positive signal for the entire cognac industry. This is evidenced by the reaction of the Rémy Cointreau share which gained more than 5% on Friday at the close and was stable this Monday (-0.09%).
Stifel believes that Campari is launching “a bold, counter-cyclical operation” but one that makes sense.
A high valuation
“Campari has been a respected player in acquisitions for 15 years. The message they send is that cognac is a great category, with a lot of potential. Even if visibility is low and no one knows when the market will start again, they say “it’s at its lowest point, we are buyers”, explains the financial intermediary previously cited.
“Another point, the operation values Courvoisier around 34 times the Ebitda (gross operating profit, editor’s note) compared to around 17 times for Rémy Cointreau, which underlines the quality of the fundamentals of the cognac,” he adds.
For Sarah Thirion, of TP ICAP Midcap, the acquisition of Courvoisier by Campari confirms “the solid prospects of cognac in the long term, independently of the transition underway in the United States on VS and VSOP (“Very Special” and “Very Superior Old Pale”, two categories of cognac, quite young, rather at the entry level of the range, Editor’s note)”.
To the question of whether the current difficulties of the cognac market are cyclical or structural, Campari chooses with conviction the first option.
“While cognac has seen many headwinds since the end of the pandemic, we view this as a cyclical phenomenon and believe it to be one of the most attractive categories in the global spirits sector”, due in particular to significant barriers to entry, underlines Deutsche Bank.
Julien Marion – ©2023 BFM Bourse
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