Company Reports

Campari has been in the right place at the right time, operating at the intersection of premiumization and mixology, two secular growth drivers that we expect to continue in the medium term. The company has executed well, and its Aperol aperitif brand has doubled its global volume share to 5% during the last decade, and performed particularly well in Europe. There is a cyclical element to Campari's success, however, and we expect the company's exposure to on-premises channels and premium categories to mean revenue will be hit harder than most consumer products manufacturers in the event of a downturn in consumer spending.

Davide Campari-Milano reported full-year 2023 results in line with our expectations. Top-line growth continues to be strong, and Campari is outperforming its larger peers, including Diageo and Pernod Ricard, thanks to the share gains of its categories. Next year promises to be another year of outperformance, albeit amid an environment of slowing consumer spending. We are reiterating our no-moat rating of Campari and our EUR 9 fair value estimate. With Campari trading around 9% above our valuation as at the close of trading on Feb. 27, we prefer wide-moat-rated Diageo and Pernod Ricard, which both trade at slight discounts to our fair value estimates and have broader portfolios.

We are reiterating our EUR 9 fair value estimate and our no-moat rating of Davide Campari-Milano following the company's announcement that it will acquire the Couvoisier cognac brand from Beam Suntory for EUR 1.2 billion in stock. We view the deal positively from a strategic perspective, but we regard the valuation, which we estimate to be around 21 times EBIT, as being high and unlikely to drive material value creation in the future. As Campari is trading at our fair value estimate, as at the close of trading on Jan. 22, we prefer wide-moat-rated Diageo and Pernod Ricard, which both trade at slight discounts to our valuation.

Campari has been in the right place at the right time, operating at the intersection of premiumization and mixology, two secular growth drivers that we expect to continue in the medium term. The company has executed well, and its Aperol aperitif brand has doubled its global volume share to 5% during the last decade, and performed particularly well in Europe. There is a cyclical element to Campari's success, however, and we expect the company's exposure to on-premises channels and premium categories to mean revenue will be hit harder than most consumer products manufacturers in the event of a downturn in consumer spending.

Campari has been in the right place at the right time, operating at the intersection of premiumization and mixology, two secular growth drivers that we expect to continue in the medium term. The company has executed well on its opportunities, and its Aperol aperitif brand has doubled its global volume share to 5% during the last decade, and performed particularly well in Europe. There is a cyclical element to Campari's success, however, and we expect the company's exposure to on-premises channels and premium categories to mean revenue will be hit harder than most consumer products manufacturers in the event of a downturn in consumer spending.

We are initiating coverage of European distillers Remy Cointreau and Davide Campari-Milano with fair value estimates of EUR 119 and EUR 9 per share, respectively. These valuations are quite close to the current market prices, and we believe both companies, as well as the group as a whole, are fairly valued. Despite the recent selloff in the stocks, we suspect there is more pain ahead, and we recommend investors wait for a more attractive market valuation before allocating capital to this group.

We are dropping coverage of Campari. We provide broad coverage of more than 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

We don’t plan a material change to our EUR 9.30 fair value estimate for narrow-moat Campari Group, outside of a small adjustment for time value, after its third-quarter earnings report. Results for the September-ending quarter tracked our full-year estimates for revenue and slightly outpaced our forecast for operating margin.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide ample runway of growth.

The backdrop heading into narrow-moat Campari Group’s first-half earnings print was auspicious, with a sustained rally in the stock ostensibly propelled by resilient spirits consumption trends in off-premises channels, along with increasing investor optimism around the prospects for a strong on-premises rebound in key markets like Italy. The firm ultimately delivered robust results, ahead of our expectations on both the top and bottom lines, which is sure to provide grist for the bulls and may further fuel the market’s exuberance. We plan to raise our EUR 8.70 fair value estimate by a single-digit percentage to reflect time value as well as strong commercial execution thus far this year. Nevertheless, the shares still look to be priced for perfection, in our view, and we’d recommend prospective investors remain on the sidelines.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide ample runway of growth.

Similar to other distillers we cover, shares of narrow-moat Campari Group had rallied meaningfully in the last few months, setting up an interesting first-quarter earnings release. The results were solid, with sales and profit roughly in line with our expectations. Nevertheless, a plethora of risks remain as COVID-19 continues to linger across key markets, and the firm remains reliant on a stubbornly tenuous on-premises recovery in Italy. We plan to raise our fair value estimate to EUR 8.70 from EUR 8.50 to reflect the time value of money, but given lofty current trading levels, the risk/reward proposition remains uncompelling, in our view. Our distillation coverage, while quintessentially moaty, remains broadly overvalued; for investors seeking alcohol exposure, we’d steer them toward no-moat Molson Coors.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide ample runway of growth.

Heading into narrow-moat Campari Group’s fiscal 2020 earnings, with the resilience in its stock belying adverse implications of the resurgence in coronavirus cases across its key markets, we think investors were looking for signs of ongoing momentum in countries like the U.S., as well as recovery indicators in Italy. While there were traces of positive evidence in which bulls could take comfort, the overall results were mixed, with revenue coming in light and profits roughly in-line relative to our expectations. We plan to raise our EUR 7.90 fair value estimate by a high-single-digit percentage to reflect time value after rolling our model as well as near-term puts and takes as the distiller navigates volatile on-premises channels across its markets. Nevertheless, the shares still look to be priced for perfection, in our view, and we’d recommend prospective investors remain on the sidelines.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide ample runway of growth.

Like other distillers we cover, shares of narrow-moat Campari Group had rallied meaningfully in the last few months, setting up an interesting nine-month earnings release. The results were solid, with sales ahead and profit roughly in line with our expectations. Nevertheless, a plethora of risks remains as COVID-19 lingers across key markets, and the firm remains reliant on an increasingly tenuous on-premises recovery, especially in Italy. We plan to raise our fair value estimate to EUR 7.90 from EUR 7.40 to reflect the time value of money and slightly better profitability this year, but given the lofty current trading levels, the risk/reward proposition remains uncompelling, in our view.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide a nice runway of growth.

Management at narrow-moat Campari Group had been fully transparent about the firm’s nontrivial exposure to the on-trade channel heading into its first-half earnings release. Consequently, we think investors tempered their expectations for the print and were primarily focused on: 1) commentary regarding prospective recoveries across its markets and 2) margin resilience, given that its most profitable products skew disproportionately to on-premises channels. The results were solid, with sales and earnings ahead of our expectations, and we plan to raise our fair value estimate to EUR 7.40 from EUR 7.10 to reflect the time value of money as well as a modestly more sanguine view on the firm’s 2020 performance. Nevertheless, like other distillers, the market seems to be unduly exuberant about the firm’s prospects, with the shares implying a level of long-term growth or margins that stretch credulity in our view.

We’re initiating coverage of distillers Remy Cointreau and Campari Group, with narrow moat and stable trend ratings. These assessments do not contravene our previous views on the distillation industry (all three distillers previously under coverage have wide moats) but rather reflect nuances in competitive dynamics and portfolio positioning. The less benign competitive environment does not negate the industry’s growth prospects, and we envision a healthy sales and margin trajectory for both firms over the next five years, supporting our fair value estimates of EUR 109 for French firm Remy and EUR 7.10 for Italy-domiciled Campari. Nevertheless, our constructive views seem to be fully priced in to current market valuations. We believe prospective investors should remain on the sidelines, particularly as the ominous backdrop of the coronavirus introduces near-term risk to both players.

As one of the world’s largest distillers, the Campari Group benefits from several advantages, many of which have been buoyed by factors like the popularity of mixology and the secular growth in premium alcohol. We view the latter as a defining trend, and Campari has been leaning into it in myriad ways, like exiting many low-margin distribution contracts for partner brands. Long term, we believe its resonant brands in favorable categories will provide a nice runway of growth.