Thursday, 22 October 2015

Pernod Ricard: spirited progress despite China destocking

Formally on Financial Orbit it has been over a year since I wrote on Pernod Ricard (link here). Back then I noted a share price of Euro100 as a target. This was achieved...and a little more. Earlier this year I became more cautious on the stock given the market appeared to be pricing in too much, too quick.  However the recent share price fall started to pique my interest again with that aforementioned Euro100 level as an indicator of value threshold (a Euro90 share price was around a x14 EV/ebit valuation which struck me as offering potential value).

Today's first quarter sales numbers have pushed the shares back over the Euro100 share price level.


And the reason?  Well whilst China (due to destocking in tier 1 and tier 2 cities) lagged the rest of the world improved...

 ...and unsurprisingly for a euro reporter currency flattered too.

Consequently profit hopes remained in a low percentage expansion level profile on a year-on-year perspective with 'strict' pricing and operational focus helping out.

Listening to the conference call there was little of additional specific value-add other than the observation that the company 'don't want to be too specific...only three months...a low quarter' .  

Overall sensible progress but no need to chase the shares aggressively here.  Back in the lower Euro90s a clear 'buy' but today's move despite a good tone to the associated commentary indicates that the market is pricing prospects about correctly.  A solid 'hold' up until the c. Euro110 when prospectively the valuation is going to be in the EV/ebit x16s which despite good brands and underlying pricing correctly would be regarded as too full.

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