20231026_Deutsche_Bank_RI-FP_Pernod_Ricard-_1Q_in_line_but_guidance_seems_a_stretch

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19 October 2023 1Q broadly in line but guidance seems a stretch Pernod's delivered 1Q organic sales growth that was broadly in line with consensus expectations and gave FY24 guidance for organic sales growth at the low end of its 4-7% medium term growth range. We update our estimates for 1Q but continue to see the organic sales growth range as out of reach in FY24 (DBe 2.0%) given US headwinds and China uncertainty and broader de-stocking risk. US risk offsets more positive China commentary On the call, management indicated that it expects positive growth in the US in FY24 despite 1Q being -8%. With industry data pointing to flat consumer offtake ytd and with challenging comparators for the balance of FY24 (on a 4yr stack basis) we expect US growth to disappoint (we forecast FY24 -3.6%) despite the benefit of acquisitions boosting organic growth. We remain concerned that there is an additional risk of headwinds from inventory contraction at the wholesaler and retailer level given overall industry inventories are close to a 30yr high. Management commentary on China was more positive than recent peer read-across would imply but we believe visibility remains low. Still a quality company but still see downside to the shares We continue to see Spirits as an attractive category long-term and believe Pernod's category exposure leaves it well placed to deliver long-term value for shareholders. However, we expect cyclical headwinds to cause growth to disappoint and see Pernod's premium focus leaving it at greater risk of downtrading than some peers. The c.5% increase in Pernod's share price following the results has broadly eradicated Pernod's valuation discount to the sector leaving the shares trading on a CY24E P/E of 19.2x, a 3% discount to European Staples but a 17% premium to European Beverages with a FCF yield of 2.6% (Staples 4.3%). Pernod is -16% over the last 3m, underperforming SX3P -8% and SXXP -3%. Remain SELL rated. Forecasts and ratios Year End Jun 30 2022A 2023A 2024E 2025E 2026E DB EPS (EUR) 8.18 9.11 8.39 9.20 10.01 % Change 0.0% 0.0% 1.2% 1.4% 1.3% P/E (DB EPS) (x) 23.5 21.2 18.9 17.2 15.8 Source: Deutsche Bank estimates, company data Mitch Collett Research Analyst +44-20-754-11307 Archit Agarwal Research Associate Tom Sykes Research Analyst +44-20-754-76418 Siobhan Lynch Research Analyst +44-20-754-10965 Gerry Gallagher Research Analyst +44-20-754-50251 Key changes TP 160.00 to 153.00 -4.4% Source: Deutsche Bank Stock option liquidity data Shares outstanding (m) 254 Option volume (und. shrs., 1M avg.) 102,695 Market cap (EUR)(m) 40,086.1 Free float (%) 75 Source: Deutsche Bank Deutsche Bank AG IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. MCI (P) 097/10/2022. Deutsche Bank Research Rating Sell Europe France Consumer Staples Beverage Company Pernod Ricard Date Forecast Change 1Q in line but guidance seems a stretch Price at 18 Oct 2023 (EUR) 158.60 Price Target (EUR) 153.00 52-week range (EUR) 217.40 - 157.00 Valuation & Risks Reuters Bloomberg Exchange Ticker PERP.PA RI FP PAR PERP ADR ISIN PDRDY US7142642070 Distributed on: 19/10/2023 10:46:12 GMT 7T2se3r0Ot6kwoPa This document is being provided for the exclusive use of MOHAMMED SAQIB at WILFRID LAURIER UNIVERSITY.
19 October 2023 Beverage Pernod Ricard Page 2 Deutsche Bank AG Updating estimates for 1Q We update our estimates for 1Q24 sales results. We reduce our organic sales and operating profit forecasts for Americas, however increase slightly for Asia and Europe. This results our group organic growth forecasts to remain broadly unchanged. However, FX drives our EPS to increase by c. 1% for FY24-26E. To reflect higher bond yields, we have also updated our risk free rate assumption for the calculation of WACC to 3.5% from 3.25%. All other WACC assumptions (equity risk premium 6.0%, cost of debt 3.0%, tax rate 30% and beta 0.9) remain unchanged. This leads to a reduction in our target price to €153 (from €160). Figure 1: We group organic numbers for FY remain broadly unchanged... FY24 FY25 FY26 EUR mln New ests Old ests Change New ests Old ests Change New ests Old ests Change Sales 2.0% 2.3% -0.3% 5.1% 5.1% 0.0% 5.3% 5.3% 0.0% Americas -4.2% -2.5% -1.7% 3.5% 3.5% 0.0% 3.8% 3.9% -0.1% Asia/ROW 6.4% 6.2% 0.2% 8.3% 8.4% 0.0% 8.5% 8.5% 0.0% Europe 1.4% 1.1% 0.3% 1.7% 1.8% -0.1% 1.8% 1.9% -0.1% Operating profit 2.6% 2.6% 0.0% 6.0% 6.0% -0.1% 6.3% 6.4% -0.1% Americas -7.0% -4.2% -2.8% 4.6% 4.7% 0.0% 5.2% 5.3% -0.1% Asia/ROW 8.0% 6.9% 1.1% 9.8% 9.9% -0.1% 9.9% 10.0% -0.1% Europe 3.8% 2.8% 1.0% 0.7% 0.9% -0.1% 0.8% 1.0% -0.1% EBIT Margin expansion (org) 16 8 8 24 24 -1 27 28 -1 Americas -88 -55 -33 28 27 1 34 34 0 Asia/ROW 43 19 25 39 40 -1 40 41 -1 Europe 61 42 19 -25 -23 -1 -24 -22 -1 Source : Deutsche Bank estimates Figure 2: ...FX drives our EPS increases FY24 FY25 FY26 EUR mln New ests Old ests Change New ests Old ests Change New ests Old ests Change Sales 12,116 12,196 -0.7% 12,766 12,848 -0.6% 13,443 13,533 -0.7% Operating profit 3,283 3,249 1.0% 3,500 3,455 1.3% 3,722 3,678 1.2% Americas 883 894 -1.2% 936 941 -0.6% 984 991 -0.7% Asia/ROW 1,521 1,486 2.4% 1,679 1,638 2.5% 1,845 1,802 2.4% Europe 879 869 1.1% 885 876 1.0% 893 885 0.9% EBIT margin 27.1% 26.6% 27.4% 26.9% 27.7% 27.2% Net Finance Charges -409 -408 0.4% -382 -381 0.3% -360 -358 0.4% Taxes (excl exceptionals) -718 -710 1.1% -779 -769 1.4% -840 -830 1.3% Tax rate 25.0% 25.0% 0.0% 25.0% 25.0% 0.0% 25.0% 25.0% 0.0% Minorities (and associates) -28 -28 0.0% -31 -31 0.0% -34 -34 0.0% Net profit (adj) 2,127 2,103 1.2% 2,308 2,275 1.4% 2,488 2,456 1.3% EPS (adj, fully diluted) 8.39 8.29 1.2% 9.20 9.07 1.4% 10.01 9.88 1.3% Number of shares - mln 254 254 0.0% 251 251 0.0% 248 248 0.0% Dividend per share 4.33 4.28 1.2% 4.74 4.68 1.4% 5.16 5.10 1.3% Net Debt (year-end) -11,588 -11,554 0.3% -11,859 -11,844 0.1% -12,064 -11,997 0.6% FX impact on EBIT -170 -210 21 11 0 0 Average EUR/USD rate 1.06 1.07 -0.8% 1.05 1.06 -1.1% 1.05 1.06 -1.1% Average EUR/INR rate 88.3 88.7 -0.4% 87.7 88.2 -0.6% 87.7 88.2 -0.6% Average EUR/CNY rate 7.75 7.80 -0.7% 7.71 7.78 -0.9% 7.71 7.78 -0.9% Source : Deutsche Bank estimates This document is being provided for the exclusive use of MOHAMMED SAQIB at WILFRID LAURIER UNIVERSITY.
19 October 2023 Beverage Pernod Ricard Deutsche Bank AG Page 3 Figure 3: We are well below consensus... -2% -3% -3% -4% -5% -6% -8% -8% -8% FY24 FY25 FY26 Sales EBIT EPS Source : DB estimates, Bloomberg Finance LP Figure 4: ...with decline in EPS estimate in FY24 0% 5% 5% -2% 7% 6% -8% 10% 9% FY24 FY25 FY26 Sales EBIT EPS Source : DB estimates This document is being provided for the exclusive use of MOHAMMED SAQIB at WILFRID LAURIER UNIVERSITY.
19 October 2023 Beverage Pernod Ricard Page 4 Deutsche Bank AG Model updated: 19 October 2023 Running the numbers Europe France Beverage Pernod Ricard Reuters: PERP.PA Bloomberg: RI FP Sell Price (18 Oct 23) EUR 158.6 Target Price EUR 153.0 52 Week range EUR 157.00 - 217.40 Market cap (m) EURm 40,086 USDm 42,231 Company Profile Pernod Ricard has rapidly expanded over the past 20 years, through both organic growth and acquisitions to become one of the world's leading Spirits companies. Pernod has chosen to focus on sustainable growth through a large portfolio of international brands and a high- end strategy. Its brands include Chivas Regal, Martell, Ricard, Pernod, Jameson, Havana Club, Ballantines, Beefeater, Kahlua and Malibu in spirits and Jacob's Creek, Brancott Estate and Montana in wines. Price Performance Pernod Ricard DJ (.STOXXE) (Rebased) Jan '21 Jul '21 Jan '22 Jul '22 Jan '23 Jul '23 125 150 175 200 225 Margin Trends EBITDA Margin EBIT Margin 21 22 23 24E 25E 26E 26 28 30 32 34 Growth & Profitibility Sales growth (LHS) ROE (RHS) 21 22 23 24E 25E 26E 0 10 20 -10 30 8 10 12 14 16 Solvency Net debt/equity (LHS) Net interest cover (RHS) 21 22 23 24E 25E 26E 0 25 50 75 6 8 10 12 Mitch Collett +44 20 754-11307 mitch.collett@db.com Fiscal year end 30-Jun 2021 2022 2023 2024E 2025E 2026E Financial Summary DB EPS (EUR) 6.16 8.18 9.11 8.39 9.20 10.01 Reported EPS (EUR) 4.99 7.68 8.81 8.39 9.20 10.01 DPS (EUR) 3.12 4.12 4.70 4.33 4.74 5.16 BVPS (EUR) 56.8 62.1 61.8 63.3 65.7 68.4 Weighted average shares (m) 261 259 256 253 250 248 Average market cap (EURm) 40,939 49,717 49,456 40,086 40,086 40,086 Enterprise value (EURm) 49,159 58,970 60,598 52,543 52,813 53,018 Valuation Metrics P/E (DB) (x) 25.5 23.5 21.2 18.9 17.2 15.8 P/E (Reported) (x) 31.5 25.0 21.9 18.9 17.2 15.8 P/BV (x) 3.29 2.82 3.27 2.51 2.41 2.32 FCF Yield (%) 4.0 3.6 2.9 2.0 4.0 4.5 Dividend Yield (%) 2.0 2.1 2.4 2.7 3.0 3.3 EV/Sales (x) 5.6 5.5 5.0 4.3 4.1 3.9 EV/EBITDA (x) 17.6 17.3 16.1 13.8 13.0 12.3 EV/EBIT (x) 20.3 19.5 18.1 16.0 15.1 14.2 Income Statement (EURm) Sales revenue 8,824 10,701 12,137 12,116 12,766 13,443 Gross profit 5,293 6,473 7,246 7,241 7,684 8,138 EBITDA 2,790 3,405 3,765 3,817 4,062 4,314 Depreciation 367 381 417 534 562 592 Amortisation 0 0 0 0 0 0 EBIT 2,423 3,024 3,348 3,283 3,500 3,722 Net interest income(expense) -371 -260 -326 -409 -382 -360 Associates/affiliates 0 0 0 0 0 0 Exceptionals/extraordinaries 0 0 0 0 0 0 Other pre-tax income/(expense) -62 -62 -83 0 0 0 Profit before tax 1,990 2,702 2,939 2,873 3,118 3,362 Income tax expense 662 672 651 718 779 840 Minorities 24 34 25 28 31 34 Other post-tax income/(expense) 0 0 0 0 0 0 Net profit 1,305 1,996 2,262 2,127 2,308 2,488 DB adjustments (including dilution) 307 128 78 0 0 0 DB Net profit 1,612 2,124 2,340 2,127 2,308 2,488 Cash Flow (EURm) Cash flow from operations 1,998 2,294 2,033 1,752 2,369 2,568 Net Capex -370 -481 -602 -969 -766 -807 Free cash flow 1,628 1,813 1,431 783 1,603 1,762 Equity raised/(bought back) -20 -813 -786 -790 -770 -770 Dividends paid -704 -826 -1,072 -1,146 -1,104 -1,197 Net inc/(dec) in borrowings -688 956 741 500 500 100 Other investing/financing cash flows -73 -680 -1,232 0 0 0 Net cash flow 143 450 -918 -654 230 -105 Change in working capital -54 -252 -568 -774 -389 -401 Balance Sheet (EURm) Cash and other liquid assets 2,086 2,559 1,624 976 1,205 1,101 Tangible fixed assets 3,177 3,591 3,614 4,006 4,189 4,382 Goodwill/intangible assets 16,230 17,657 18,999 19,043 19,063 19,084 Associates/investments 36 243 40 40 40 40 Other assets 10,618 11,962 13,399 13,643 14,470 15,314 Total assets 32,147 36,012 37,676 37,707 38,968 39,921 Interest bearing debt 9,601 11,199 11,890 12,390 12,890 12,990 Other liabilities 7,471 8,561 9,071 8,409 8,732 9,061 Total liabilities 17,072 19,760 20,961 20,799 21,622 22,051 Shareholders' equity 14,829 15,944 15,717 15,908 16,342 16,863 Minorities 246 309 998 1,001 1,004 1,007 Total shareholders' equity 15,075 16,253 16,715 16,908 17,345 17,870 Net debt 7,515 8,640 10,266 11,414 11,685 11,889 Key Company Metrics Sales growth (%) 4.4 21.3 13.4 -0.2 5.4 5.3 DB EPS growth (%) 13.1 32.7 11.4 -7.9 9.6 8.9 EBITDA Margin (%) 31.6 31.8 31.0 31.5 31.8 32.1 EBIT Margin (%) 27.5 28.3 27.6 27.1 27.4 27.7 Payout ratio (%) 62.4 53.5 53.2 51.4 51.4 51.4 ROE (%) 9.1 13.0 14.3 13.5 14.3 15.0 Capex/sales (%) 4.2 4.5 5.0 8.0 6.0 6.0 Capex/depreciation (x) 1.0 1.3 1.4 1.8 1.4 1.4 Net debt/equity (%) 49.9 53.2 61.4 67.5 67.4 66.5 Net interest cover (x) 6.5 11.6 10.3 8.0 9.2 10.3 Source: Company data, Deutsche Bank estimates This document is being provided for the exclusive use of MOHAMMED SAQIB at WILFRID LAURIER UNIVERSITY.
19 October 2023 Beverage Pernod Ricard Deutsche Bank AG Page 5 Appendix 1 Important Disclosures *Other information available upon request Disclosure checklist Company Ticker Recent price* Disclosure Pernod Ricard PERP.PA 158.6 (EUR) 18 Oct 2023 2, 7, 8, 14, 15, 24 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at https://research.db.com/Research/Disclosures/ EquityResearchDisclosures . Aside from within this report, important risk and conflict disclosures can also be found at https://research.db.com/Research/Disclosures/Disclaimer . Investors are strongly encouraged to review this information before investing. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 2. Deutsche Bank and/or its affiliate(s) may act as a market maker or liquidity provider in the financial instruments issued by this company. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. 14. Deutsche Bank and/or its affiliate(s) has received compensation from this company within the past year for non- investment banking related services. 15. This company has been a client of Deutsche Bank Securities Inc. within the past year during which time it received investment banking services. Important Disclosures Required by Non-U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 2. Deutsche Bank and/or its affiliate(s) may act as a market maker or liquidity provider in the financial instruments issued by this company. 24. Deutsche Bank and/or its affiliate(s) is or has been over the previous 12 months party to an agreement with the company relating to the provision of services set out in Sections A and B of Annex I of Directive 2014/65/EU, or has over the previous 12 months been obliged or entitled (as applicable) to pay or receive compensation relating to the provision of services set out in Sections A and B of Annex I of Directive 2014/65/EU. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at https://research.db.com/Research/Disclosures/EquityResearchDisclosures. Aside from within this report, important risk and conflict disclosures can also be found at https://research.db.com/Research/Disclosures/Disclaimer. Investors are strongly encouraged to review this information before investing. Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Mitch Collett. This document is being provided for the exclusive use of MOHAMMED SAQIB at WILFRID LAURIER UNIVERSITY.
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