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Is Rémy Cointreau’s Chinese consumer demand steady enough?

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So how much do you know about the state of mind of Chinese cognac drinkers? And are you confident enough to back your view with cash? If the answers are "plenty" and "yes," then go ahead and buy shares in Rémy Cointreau, which reported results on Tuesday. Exposure to China's wealthier consumers has been a boon to Rémy, which specialises in high-end cognac. Profit growth has averaged 20 per cent for the past four years. That is better than rivals have managed, so Rémy's shares, which were rated in line with Diageo and Pernod Ricard four years ago, now enjoy a premium. They trade on 23 times forecast earnings, against 18 for the other two.

To maintain that premium – let alone expand it – Rémy has to keep growing. Yet the trend is not encouraging. The change in Chinese leadership, and efforts to rein in gifting, have dented the enthusiasm of buyers of the more expensive cognac brands. Organic sales growth was 9 per cent in the year to March, against 16 per cent the previous year. This year may not be much easier. In April the company told analysts that wholesale inventories were higher than normal. Rémy is confident that demand will return, particularly for drinks bought in bars and restaurants. Still, earnings forecasts for the year to March 2014 have been drifting down, from €4.30 ($5.83) a share last October to €3.70 now.

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One way to shore things up would be to grow the group's other brands, which include Mount Gay rum and Cointreau. Profits from these brands fell 14 per cent last year, as the company put money into marketing and absorbed raw material price increases. But it plans to invest. It bought Bruichladdich whisky for £58-million ($92.5-million) last July – its first foray into scotch – and it has the balance sheet capacity for more deals. But all that will take time to show through on the bottom line. For now, it is all about the Chinese cognac.

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