Pernod Ricard (Baa1, BBB+, BBB+; S); 1H24 Results, cash lines unch, equities +5%

Summary take; Pernod Ricard 1H24 (Baa1, BBB+, BBB+; S) reported headline results in-line while tempering forward guidance which should see analyst consensus for FY24 shift slightly lower. Equities coming off cheap (relative) levels is helping it move higher this morning on in-line results. Credit cash bonds already trade tight to comp. names, leverage indicating above its allowed rating range now - though likely to be temporary with buybacks also tempered down. Not a name we see as cheap.

Organic revenue of 1H came ~in line at $6.6b with large negative fx impact dragging on actual's (organic rev's -3%, actual -7%) - FX drag was seen by analyst already. Miss broad-based across Americas/Asia/Europe - "positive outlook on US and China and strong growth in Travel Retail and India" now removed from guidance.

Fall in profits from recurring operations & more than doubling (yoy) in Capex (to €391m) dragged FCF to €301m - down 68% yoy. Capex driven by capacity expansion with warehouses & new distilleries in Ireland, & US. It was guiding to Capex of €800m-€1b - guidance now at €800m

Net debt up €1.1b to €11.4b over the qtr dragging leverage from 2.7* to 3.3* which should take it above Moody's allowed range for its Baa1 rating (sustained increases above range for downgrade). Management - "leverage ratio to improve as reported PRO growth normalises (see below on guidance for FCF).

Guidance changes; FY24 share buyback cut from €500-€800m for FY24 to €300m - €150m was completed by 1Q, none in 2Q. FY24 organic net sales growth expected to be "broadly stable" - in 1Q it was "Broad-based and diversified inorganic Net Sales growth" - consensus (*9) was looking for +2.4%. Medium term growth target unch at organic +4-7% growth. FCF guidance line added; "FCF reflecting lower reported PRO & increase in strategic investments" - noting FY guidance includes 1H fall & expected stabilisation in 2H.

Curve trades on tighter end of F&B names - no firm view from us here (yet) - though we would note it has higher exposure to China (& hence any trade policy) vs. close comp's Heineken (A2, BBB+) & Carlsberg (Baa2 Pos, NR, BBB+ S) - yet trades tighter than both. Cash lines unch this morning.