Pernod Ricard: Pernod Ricard at its lowest valuation multiples

Volumes are stable, although a trend towards destocking amongst distributors and pressure on prices have caused sales to decline by 5% in the first nine months of the fiscal year. However, the situation could have been worse. By country or product portfolio, all segments are down. It is in China-and by extension in travel retail-that the French group is feeling the pinch most severely, primarily due to cognac. Indeed, this does not bode well for Rémy Cointreau . Pernod Ricard has lost half of its market capitalization in the space of two years. Suffice to say that the post-pandemic hangover is severe. In October 2023, we pointed out that a return to its average valuation was, all things considered, not surprising. The group remains an admirable cash machine, prudently managed and solidly financed. It is nevertheless regrettable that it accelerated its share buybacks at the worst possible moment-i.e., in the wake of the pandemic, at a valuation much higher than that today. Pernod Ricard appears to remain capable of generating €3bn in profit before tax and exceptional items, such as last year's €500m asset write-down: when this is compared to the company's market capitalization of €23bn, the situation is striking. Given its current valuation multiples , the group has not been valued so low since the euro crisis in the summer of 2011. This shows how pessimistic the mood is in the spirits sector. In addition, the dividend yield of 5.1% should help investors willing to buck the trend to wait patiently without wavering. Volumes are stable, although a trend towards destocking amongst distributors and pressure on prices have caused sales to decline by 5% in the first nine months of the fiscal year. However, the situation could have been worse. By country or product portfolio, all segments are down. It is in China-and by extension in travel retail-that the French group is feeling the pinch most severely, primarily due to cognac. Indeed, this does not bode well for Rémy Cointreau . Pernod Ricard has lost half of its market capitalization in the space of two years. Suffice to say that the post-pandemic hangover is severe. In October 2023, we pointed out that a return to its average valuation was, all things considered, not surprising. The group remains an admirable cash machine, prudently managed and solidly financed. It is nevertheless regrettable that it accelerated its share buybacks at the worst possible moment-i.e., in the wake of the pandemic, at a valuation much higher than that today. Pernod Ricard appears to remain capable of generating €3bn in profit before tax and exceptional items, such as last year's €500m asset write-down: when this is compared to the company's market capitalization of €23bn, the situation is striking. Given its current valuation multiples , the group has not been valued so low since the euro crisis in the summer of 2011. This shows how pessimistic the mood is in the spirits sector. In addition, the dividend yield of 5.1% should help investors willing to buck the trend to wait patiently without wavering.