Laurent Perrier - Trading at below book value!
Laurent Perrier has published TODAY interim results. Trading at below book value while sales are increasing YoY!
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As mentioned in my champagne supernova post, I have build up recently a good position around 91-92 euros on Laurent Perrier as Champagne is the only brightspot in the spirits LALA LAND. The family Nonancourt owns 65% of the company. A widow, Marie-Louise de Nonancourt bought the estate at the start of the WWII. First Eagle, another long term investor has 10% of the stocks. We are in good company. They won’t do anything stupid to impress the shareholders.
Today, November 29th, Laurent Perrier has published first half results (April to September) and as expected, the company was able to increase Champagne sales by 3.5% in Euro. considering that
If you refer to the results published by LVMH, Champagne (&Wines) sales reached 1482m euros in the same period versus 1463m or up 1.2% in Euros.
LVMH claimed an organic growth of 7% or a tailwind of close to 6% due to the Euro strength. So, Laurent Perrier is likely facing a similar currency tailwind as 87% of its sales is in the export market. So organic sales is likely to be in the 9-10% range. The fact that LPE is taking market share against the formidable LVMH is impressive. LVMH is in a league of its own with Moët & Chandon, Veuve Clicquot, Dom Pérignon, Krug, but Laurent-Perrier brand is slowly rising.
There are 5.93m shares. The current book value has risen to 640m. So book value is 108 euro per share. At 94$ today, the stock is trading at 0.87 P/B. Most of the book is in inventory which is valued at cost. The market value of this inventory is much larger than that since operating margin are 28% and 58% gross margin. I believe such a company with positive growth should not trade below book value.
Historically, LPE has traded at an average of P/B of 1.5 in avearge. The last time it traded at this price was in 2009, during the GFC.
The long term Champagne market is growing slowly but steadily.
This is mostly driven by price increase as the market as shipped about that same amount of bottles in 2024 than in 1998. It is subject to cyclicality but down years cycle are abrupt but short (2000 and 2001), 2009, 2020.
Summary
LPE is trading at its lowest ratio in terms of P/B of 0.87 versus historical average of 1.5, while sales is rebounding. As similar 50% discount versus historical is also present based on PE ratio. I think the market has thrown the baby with the water (Spirits industry). It is a victim by association (Spirits industry). I am not making the same association.
Cheers
Seems like a unique asset. East72 has a good writeup on it as well. I struggle on two points:
Margins up are up a lot in the past few years vs. the previous 10-15. What changed in the business and why are oper margins sustainable at ~25% (vs high teens before)?
And ultimately, despite better profitability more recently, avg ROICs are still 5-7%... shouldn't it trade below book?
Having the former CEO of Hermès as chairman is (I think) an asset that should not be underestimated. Patrick Thomas made a huge impact at Hermès. He's currently also on the board of Richemont.