FORECASTS AND ANALYSIS OF REMY MARTIN SALES

[caption id="attachment_5719" align="aligncenter" width="397"]

Remy Cointreau logo

Source: Jefferies International Limited

Edward Mundy

September 27, 2018

We expect a continued strong performance in the Cognac division (c.80% profits) and expect 2QE group org sales +9.0% (vs 1Q 5.9%). We like Remy's category exposure and see upside as the CEO rolls out her vision for the co as a super-premium business. While we like Remy, trading at 29.9x cal 2019 PE, shares need upgrades to perform. We remain at HOLD.

What's new? Remy reports 1H sales on 17 October. We expect 1H org sales +7.6% with 2Q +9.0% vs 1Q 5.9%. The drivers of the acceleration in 2Q, we believe, are continued robust cognac demand (we model 2Q cognac org sales +12% vs 1Q +11.1%) with benefit of easier comps, as well as some positive impact from technical effects in Partner Brands. For full details of our expectations, refer to detail within this report.

Cognac (67% sales / 81% profits) - likely to remain robust. We model 1H cognac org growth +11.6% with 2Q +12% vs 1Q +11.1%. Within this, we expect US and Europe to be a bit stronger vs 1Q. Whilst Asia depletions (sell-out) momentum is likely to be unchanged vs 1Q (vols solid DD, sales strong DD), we believe shipments (sell-in) will be more normalised. In 1Q, China cognac shipments ran modestly ahead of depletions with some inventory replenishment after the strong CNY; we expect shipments to match depletions in 2Q.

COGNAC PRODUCTION WILL BE GOOD THIS SEPTEMBER 2018

Big Data Logo

Even with a dry summer the production of grapes in Cognac are looking goodaccording to the BNIC by 31st August 2018.
"Quasiment pas de pluie lors de la semaine passée. Dans l’ensemble le vignoble supporte bien cette sécheresse, toutefois certaines parcelles montrent des symptômes déjà marqués : jaunissement du feuillage, baies petites et molles. Les températures encore élevées en milieu de semaine provoquent de nouveaux dégâts d’échaudage. Elles se rafraîchissent nettement en fin de semaine."

Source: http://www.cognac.fr/cognac/_fr/4_pro/index.aspx?page=actualite&id=7501&src=flash

Hence, the Government and Cognac Society (BNIC) have agreed for a rather high rate of harvest per hectar of vineyard for the production of cognac, i.e., 14,64 hl AP /ha.
This decision follows a rather large demand for cognac in 2018 with + 8,2% in volume and 5,4% in value on 31st juillet 2018.
"Confirmant un besoin total de 914 700 hl AP, la filière Cognac a validé, au sein de la Section ODG du BNIC, un rendement annuel Cognac 2018 à hauteur de 14,64 hl AP /ha. Ce chiffre, issu du Business Plan Cognac a été entériné ce jour dans le cadre du Comité Régional INAO. Cette décision collective et unanime répond à la forte demande des marchés et à la croissance des expéditions ... et ... tient compte de la capacité du vignoble affecté par les aléas climatiques et des dernières estimations de récolte de la Station Viticole du BNIC."

Source: http://www.cognac.fr/cognac/_fr/4_pro/index.aspx?page=actualite&id=7505&src=flash

COGNAC BUSINESS IS FORECASTED TO GROW IN EASTERN EUROPE

Eastern Europe is becoming increasingly a growth heaven for spirit brands as the vodka markets are loosening up to make room for other spirits. A new generation of drinkers and bartenders is opening up to western spirits and in particular but not only to whiskies from Scotland and Ireland.

The cognac sales are keeping upward sales trends with estimated sales going up +24% in the next 5 years according to a recent report from Euromonitor, says The Spirits Business.

Courvoisier in particular is working on the eastern border in Russia and Ukraine where they expect the fastest growing demands as these markets are following Russia's middle class path for success. The Czech Republic is also developing fast growing demand with other new frontiers coming up such as Bulgaria where Diageo is making quick headway with Bushmills Irish whiskey and Johnnie Walker .

Once consumers start to gain economic success their import spirit tastings is growing.

With affluent markets growth in eastern Europe Russia is expected to grow +20% its cognac consumption by 2016, and Poland is said to be the next best hit with +17% growth expected for the cognac in the next 3 years.

Russian Dolls - Matryoshka - Babushka

Source: The Spirits Business