Remy Cointreau: Despite Huge Beat, No Fizz Here

| About: Remy Cointreau (REMYF)

Stock price: €42.9 ($57.15 US)
Conclusion: Huge beat in sales but growth in China is expensive. Remy Cointreau (OTCPK:REMYF) looks fully priced based on our valuation range of €41-€43 per share.

Fiscal 2010 sales: €808m, up 13% (+12% organic), implying +100% in Q4.

Remy Martin sales jumped by 28% organic, boosted by price increases and improved mix from superior qualities. Q4 growth (+200%) was spectacular, helped by market share gains in China, positive timing from the late Chinese New Year and easy comps.
Liqueurs and spirits (Cointreau, Passoa, Mount Gay Rum) sales increased by 5%, again driven by a strong Q4 (+42%).
Champagne remained depressed with a 24% decline in sales.

Management guided to an “organic profit growth” instead of a “slight like for like EBIT growth” suggesting some upgrade.
We are now looking for €1.96 vs €1.80 previously (+9%). Much will depend on the magnitude of the step-up in advertising expenses (18.5% of sales last year). Details will be provided early June.

Fiscal 2011 should benefit from three key drivers. First, continuing growth in China, helped by the booming economy and share gains led by the move to owned distribution in Asia. Second, improved sales in Champagne combined with the positive impact from restructuring measures. Third, positive swing in forex expected from a stronger dollar. We expect EPS to move up to €2.36 (+20%).

Remy Cointreau trades at 19xP/E and 14xEV/EBITDA based on calendar 2010 estimates, implying 20% premium to the sector. We feel that the stock is fully priced and see better return elsewhere.