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MNI POLITICAL RISK ANALYSIS - Week Ahead 9-15 Dec
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.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.