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Rémy Cointreau: New 10-Year Plan Confirms Low-Teens Annual Return

Librarian Capital profile picture
Librarian Capital


  • Rémy Cointreau released FY20 results last Thursday, with the new CEO announcing new 10-year profitability and margin targets.
  • The new targets imply a 10%+ earnings CAGR, and management aim to raise margins to peer levels and manage the portfolio more actively.
  • EPS fell 30% organically in FY20, due to the Hong Kong protests and COVID-19; management expects a "strong" recovery in H2 FY21.
  • At €115.80, on unimpacted FY19 EPS, the P/E is 35.9x, a reasonable valuation given Rémy's unique brands and growth potential.
  • Earnings growth alone lead to a 10%+ annualised return, and Rémy is a unique asset that may attract strategic interest to create further upside.


Rémy Cointreau (OTCPK:REMYY) (referred here as "RCO") has been a Buy-rated stock in our coverage universe since December 2019 - we like the structural growth in the global spirits sector, driven by both increasing premiumisation and rising emerging markets affluence (especially in China). RCO, while having a narrower portfolio than larger peers Diageo (DEO) and Pernod Ricard (PDRDY) (both Buy-rated), has a higher concentration of premium brands, which gives it faster though more cyclically volatile earnings growth.

RCO released its FY20 results last Thursday (4 June), and shares closed up 11% that day, though they have lost most of that gain since.

In this article, we review the results in more detail and show how they support our investment case.

New 10-Year Targets

The most important news within the FY20 results was the new 10-year targets announced by CEO Eric Vallat, who took up the role in December 2019.

RCO will now target an EBIT margin of 30% (compared to 21% in FY20) and a gross margin of 72% (66% in FY20) for 2030. The plan includes an EBITDA CAGR of 6-7% (with a volume CAGR of 2%) for RCO's House of Rémy Martin Cognac business and unspecified but faster EBITDA CAGR for its Liqueurs & Spirits business. While progression towards these targets will not be linear, together, these imply a net income CAGR of 10%+ in the next 10 years:

RCO New 2030 Targets

NB. Figures on organic basis and exclude currency.

Source: RCO results presentation (FY20).

The new EBIT margin target would put RCO more in line with peers, while the new gross margin target would put RCO even further ahead of peers:

RCO Margin Profile vs. Peers (Last 12 Months)

Source: Company filings.

RCO's concentration of premium and

This article was written by

Librarian Capital profile picture
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Analyst’s Disclosure: I am/we are long DEO, PDRDY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

I know you wrote this article when the share price was lower, but how on earth do you expect double-digit returns when, based on the actual company's earnings, the business' yield is barely 2%.
Librarian Capital profile picture
@LePlatPays I am sorry you have missed this one, and clearly a lot of other winners in the last few years that you regarded as "too expensive".

Being too fixed to one metric is usually a mistake.
@Librarian Capital
Well it's clear you're very emotional about this stock and that you're incapable of thinking with a cool head about it, so i'll break it down for you:
On your point about being fixed (the word you were looking for was "fixated," by the way) on one metric, it seems you're blissfully unaware of the essence of valuation: stock returns come from earnings/cash flows. You won't get stock price appreciation, at least in the long-term, if the stock's valuation doesn't match up to the company's earnings and cash flows. One of the only redeeming elements of RCO's valuation is its balance sheet, but RCO's going to put a dent in its own armour by squandering upwards of €160M on its own ridiculously overvalued shares. You should consider yourself lucky if you can squeeze out a 4% annualized return on this stock over the next decade.
I'm also not kicking myself over not having jumped on this train. I'm not dumb enough to look at a blatantly overvalued stock and tell myself that I've made a mistake not buying it because it's gone up in the last year, but presumably you feel bad about having missed Gamestop earlier this year. The problem for you is you hopped on a train and don't realise yet that you paid €100 on a ticket that travels a distance of 5km.
Also, you should see my portfolio's performance in the last year and a half; it would make you salivate. RCO would almost be the worst performing stock for me had I bought it. Fundamentally, investing the way you do makes no sense. You're trying to justify an obscene valuation when you could just choose to be selective and own a few really great companies at fair prices. Isn't that a better strategy? Go look at Dassault Aviation, and tell me it isn't a better investment than RCO in every respect. There. Done.
Librarian Capital profile picture
@LePlatPays "you're very emotional about this stock"

I don't even own it. Read the disclosures.

You are only demeaning yourself when you rant online.
autofocus111 profile picture
Librarian I don't follow this spirits maker so I may be missing something here, but why would a company need to abruptly triple their investment in 'new future inventory' rather than have spent relatively stable amounts annually all along, increasing gradually to track expected growth, to maintain sufficient inventory build to meet future expectations? How do you reconcile the fact that a company that is confident in putting forward a 10 year plan appears unable to conservatively manage aging inventory of product? Have growth expectations shifted so dramatically in such a short time that such a significant adjustment to target builds is deemed necessary? Or did the company choose to purposely deplete inventory the last few years (and if so, why?) This seems odd.
Librarian Capital profile picture

It's a fair question but there are some relevant datapoints to consider:

(1) Growth has actually been very strong. Before this year's problems in Hong Kong and Covid-19, RCO's cognac sales grew 10.0%, 13.2%, and 11.9% in FY17, FY18 and FY19 respectively. Most of this is price/mix - the price bit indicates there is untapped demand, and the mix bit indicates it may make sense to shift the mix to even more premium (aged) products

(2) Cognacs take a long time to produce, and is worth more if you age it more. I don't pretend to know about it as a drinker, but I believe the ageing process is a minimum of 2 years for VS, 4 years for VSOP and 6 years for XO.

(3) Some spirits companies have started to run out of inventory because they didn't plan ahead. Suntory and Japanese whiskies being one widely-reported example (again, my knowledge is purely academic; I don't drink these either).

(4) Some of the raw materials, notably agave but I think also glass, have gone up in price, agave possibly due to (1)

In an ideal world, I agree working capital should be more neutral. If demand/supply is perfectly balanced, it should be exactly neutral. However, because it takes at least 2-6 years to produce cognac, even a single step change in demand should mean a few years of cash outflows, because that's how long it takes before the first batch of your newly-expanded supply is sold.

RCO management has commented on the inventory increase as part of RCO's advantage as a family-controlled firm to be able to plan long term, though I have yet to find specific discussion of the figures involved. On balance, however, I believe it is a reasonable explanation.
autofocus111 profile picture
Librarian As you point out, growth has been strong for the last several years. If the company expected that trend to continue or even accelerate back then, the spend alllocation should have been adjusted upwards over that period, but it stayed basically flat until FY18. It seems to me that the company, despite seeing the growth, either was not confident it would continue, or purposely chose to draw down inventory. A cognac or whiskey maker knows it takes years to age product. It's hard to believe they were caught off guard so badly, but if they couldn't plan properly before, that puts doubt into their competence to issue a reliable 10 year plan going forward, at least to me.
Librarian Capital profile picture
This is a subjective area where I respectfully disagree.
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