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Champagne: no fizz in 2009
n The champagne sector has seen a period of exceptional growth, both in terms of
value and volume. Today, it is facing three issues: 1/ limited growth in volume
reflecting the saturation of the AOC zone; 2/ inflation in supply costs (grape
prices); and 3/ a disrupted consumption environment in the short/medium term.
n While constraints relating to volumes and supply cost inflation may find an answer
in increases in the value per bottle, the consumption constraint on the other
hand is likely to weigh on performances in 2008 and 2009.
n Our scenario for 2008 factors in a drop in volumes of 7%e, and a slight impact on
profitability thanks to price increases, except for Laurent Perrier (volumes -26%). In
2009, the climate for consumer spending is unlikely to be favourable to growth in
volumes (projected to fall by 7.5%), and operating profitability is set to deteriorate
sharply, as in past crises, as a result of grape price inflation and rigid cost
structures. From 2010, we expect a recovery in consumption and an improvement
in profitability. After an average decrease of 22% in 2008 and 48% in 2009, we
see average EPS growth of 18% in 2010.
n In the long term, we still see the sector as particularly attractive given the
scarcity of the product and the strong potential for international growth. The
development of brands, speciality products (vintage champagnes, rosé), and the
adjustment of distribution to a more selective network (wine shops, bars and
restaurants) will ensure growth in value terms, offsetting weaker growth in volumes
(2% per year) reflecting long-term supply constraints until the effects of the
extension of the zone are factored in (2020).
n Against this backdrop, our preferred stock is Boizel Chanoine Champagne
(Add, target price
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