Remy Cointreau Earnings: Cognac in Freefall but Inventory Restocking Signals Improvement Ahead

Remy Cointreau reported disappointing results for its December-ended third quarter of fiscal 2024, with a steep decline in cognac sales that missed our forecasts. The stock, however, responded positively, jumping by 15% in trading on Jan. 26, likely because management made positive comments about its expectations for a volume recovery in the fourth quarter. While investors may be relieved that cognac appears to be rebounding, the risk of a longer-term impairment of demand in China remains. We are reiterating our narrow moat rating and our EUR 119 fair value estimate, which assumes a recovery in the fourth fiscal quarter followed by mid-single-digit revenue growth in fiscal 2026 and beyond. The uncertain outcome of China's policy review relating to imported brandy limits our conviction in these forecasts. As such, we believe the remaining 15% upside to our valuation does not compensate investors sufficiently for the risk of a ban on cognac in China, although noise relating to the review may create attractive opportunities to build a position in the future.