Morning Note: Market news and an update from Remy Cointreau.

Market News

The dollar fell as investors digest a batch of mixed economic data and Donald Trump’s cabinet picks. Both PCE (2.3%) and core PCE (2.8%) prices rose in line with expectations while personal income and spending were stronger-than-anticipated. Also, pending home sales unexpectedly rose. The 10-year Treasury yield has fallen to 4.25%, close to a 1-month low and erasing the post-election spike. Gold is little changed at $2,640 an ounce.

US equities drifted lower last night – S&P 500 (-0.4%); Nasdaq (-0.6%) – ahead of Thanksgiving. There were disappointing updates from a range of larger hardware/software companies and subdued macro data.

In Asia this morning, equities in China underperformed the region – Shanghai Composite (-0.4%), Hang Seng (-1.2%) – as traders awaited signals of further stimulus from policymakers in Beijing ahead of a key economic meeting next month. Japanese semiconductor companies jumped amid a report that the US is considering lighter-than-expected restrictions on sales of chip equipment and AI memory semiconductors to China. The Nikkei 225 rose 0.6%.

The FTSE 100 is currently trading 0.2% higher at 8,290. Direct Line is up 35% this morning following a cash and shares offer from Aviva. The DLG Board has rejected the implied 250p bid as it ‘substantially undervalues’ the company. Companies trading ex-dividend include Imperial Brands (2.06%), Marks & Spencer (0.26%), 3i (0.83%), Land Securities (1.51%), Severn Trent (1.77%), and United Utilities (1.52%). Sterling trades at $1.2648 and €1.2010.

France’s 10-year yields rose, matching Greece’s for the first time on record. Christine Lagarde urged Europe’s political leaders to co-operate with Trump over tariffs and buy more products made in the US, the FT reported.

Brent Crude slipped to $72.50 a barrel. OPEC+ will delay Sunday’s online meeting on oil production curbs to 5 December, according to delegates. The group is set to discuss whether to proceed with reviving halted supplies.

Source: Bloomberg

Company News

Rémy Cointreau has this morning released results for the financial half-year to 30 September 2024. The impact on profitability as a result of weak revenue has been limited by strict cost controls. In response the shares are up 2%, having already fallen over recent months in response to similar announcements from industry peers.

Rémy Cointreau is a global alcoholic beverages business, with iconic brands including Rémy Martin, Cointreau, Greek spirit Metaxa, Mount Gay rum, and The Botanist gin. The group’s strategy is to move upmarket through portfolio streamlining at the expense of low-end products, adaptation of its distribution network, and expiration of distribution agreements with partner brands. The target is to become the world leader in ‘exceptional spirits’ – described as retailing at more than $50. The business plays well to the increased global demand for premium and luxury products, the rise of mixology and at-home consumption, and strong growth in online sales. The group is targeting a gross margin of 72% and a current operating margin of 33% by 2030.

However, in the near term the industry is struggling, and the group has launched a new cost cutting plan totalling over €50m.

In the six months to 30 September 2024, reported sales fell by 16.2% to €533.7m, including a negative currency impact of 0.3%. In organic terms, sales fell by 15.9%, although they are 1.5% above the same period in 2019 (i.e., pre-pandemic).

By product type, sales of Cognac were down 18% on an organic basis, made up of a 14.2% slide in volume and a 3.3% fall in price/mix. This primarily reflected ongoing destocking in the US impacted by the normalisation of consumption and high interest rates. Sales in the Liqueurs & Spirits division fell by 12.0% in organic terms, driven by a tougher market in the Americas and a slowdown in whiskey in China.

The gross margin fell by 140 basis points on an organic basis to 72.5% but is still three percentage points higher than pre-pandemic. Current operating profit of €147.3m was down up 17.6% in organic terms, and ahead of the market forecast of €134m. The operating margin only fell by 50 basis points organically to 27.6%, driven by control of overheads. EPS fell by 25% to €1.80.

The company is financially strong – at 30 September, financial gearing stood at 1.9x net debt to EBITDA, albeit up from 1.57x a year ago.

Looking forward, the company has set out its guidance for the financial year to March 2025. Revenue is expected to fall by 15%-18% in organic terms. This compares to the previous guidance for a double-digit decline and is below the current market forecast of -12%. By region, the Americas isn’t expected to return to growth before the March quarter at the earliest. Sales in the APAC region in the second half will see a sequential deterioration compared to the first half. EMEA will see continued subdued consumer trends in the second half. An organic deterioration in the current operating margin is expected to be partially offset by the cost cutting plan. The guidance is a margin of between 21% and 22%.

The group has reiterated its long-term targets. For the 2025/26 financial year, the group is guiding to organic sales growth in the high single-digits and a gradual improvement in the margin.

Source: Bloomberg