Pernod Ricard Has Little Upside

 |  About: Pernod Ricard S.A. (PDRDF)
by: Véronique Adam

Stock Price: €59.90 ($86.13 USD)
Conclusion: Trading statement confirms a slow start. Pernod Ricard looks fairly priced in light of our valuation range of €59-€62.

H1 Trading statement: Sales down 3% like for like (-4% Q1-2% Q2). Management confirmed +1% to +3% EBIT organic growth

We expect 2010 to be a year of consolidation for Pernod Ricard (OTCPK:PDRDF):

  • Notwithstanding a return to growth in Q3 (+8%) helped by much easier comparison, we think that exceeding 1% organic growth this year will be very challenging.
  • Currencies should impact reported revenue growth by -1 to -2%.
  • Management made it clear that marketing expenses will increase relative to sales.
  • Pernod Ricard’s trading statement confirms that Asian sales continued to perform well but that key markets such as Europe and the US keep struggling.

Pernod Ricard trades at 14.3xP/E and 13xEV/EBITDA based on calendar 2010 estimates . Our DCF suggests little upside (€62 per share). We think that brewers (ABInbev and Heineken (OTCQX:HINKF)) offer better upside in the coming months.

Disclosure: No positions