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Remy Cointreau

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

Operating Leverage Drives Record Profitability for Remy; We Raise Our FVE on Robust Cognac Pricing

Narrow-moat Remy Cointreau generated record profitability through first-half 2021, with the group reporting 33% operating margins (up 8.3 points annually) as on-trade volumes returned in Europe and as April price hikes bolstered the bottom line. The firm's liqueurs and spirits segment was surprisingly robust, with a mix shift toward margin-accretive brands (Cointreau, The Botanist, Malt Whiskey and Telmont) and operating leverage driving 23% segment margins, up 6.4% from 2020 levels. Though we expect management to plow back a portion of profits toward promotional spending as they scale up their e-commerce business, invest in upper funnel marketing for the aforementioned brands, and build out a more robust customer relationship management, or CRM, platform, gross margin leverage looks stickier--and prompts us to modestly pull forward our forecasts for margin expansion. While management maintained its 2030 targets for 72% (33%) gross (operating) margin, our revised 2025 forecast contemplates that those clock in at 71% and 32.6%, respectively (suggesting management conservatism), sustained premiumization, at-home consumption trends, and positive momentum in the spirits and liqueurs segment underpinning our view. Consistent with these changes, and time value of money, we expect to raise our EUR 143 fair value estimate by a mid- to high-single-digit percentage, though shares continue to look expensive, trading at a 30%-35% premium to our updated figure.

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