Shares of European spirits makers jump as China drops provisional brandy measures
Adds analyst comments, updates share moves
By Alessandro Parodi and Ozan Ergenay
Aug 29 (Reuters) -Shares in French spirits makers Remy Cointreau RCOP.PA and Pernod Ricard PERP.PA rallied on Thursday after China's commerce ministry said it will not immediately impose provisional anti-dumping measures on brandy imported from the European Union.
The EU in July imposed tariffs on imports of electric vehicles from China, which could use the threat of measures on liquor imports as leverage, two analysts told Reuters.
"There's clearly a complex .. set of interactions at the moment between the EU and China," Bernstein analyst Trevor Stirling said, adding that Cognac and dairy products are potential collateral damage in the process.
Shares in Remy, which jumped more than 12%, were 5.3% higher by 1145 GMT, while Pernod, which climbed as much as 10%, was up 3.3%.
"I think that the market reaction today was to the initial headlines that said no tariffs for now," Barclays analyst Laurence Whyatt said, adding that investors then likely recognised that tariffs could be imposed at a later date.
China's commerce ministry said in a statement that investigating authorities had determined that dumping had taken place and that its domestic brandy industry had been threatened.
It added that the investigation had found European distillers selling brandy at a margin of 30.6%-39.0% and left open the possibility to act at some time in the future.
Citi said that if dumping margins were translated into additional tariffs, its analysts would expect Chinese retail price increases of about 16% and 20% for Pernod and Remy, respectively, with an estimated impact on group earnings per share (EPS) of about 2% and 8%.
"Our discussions with investors suggest most were expecting – and share prices were already discounting – around a 50% incremental cognac tariff rate," the bank said.
Pernod Ricard's CEO Alexandre Ricard refused to immediately comment on the decision as he hosted the company's yearly results on Thursday.
The French cognac industry makes up almost all of China's EU brandy imports. Beijing announced the probe in January, weighing on sentiment towards producers like Remy, which makes some 70% of its sales from cognac, with China its most profitable market for the brandy.
Shares in Italian spirits maker Campari CPRI.MI and Johnnie Walker whisky maker Diageo DGE.L also jumped briefly after the announcement, but were last up 1.4% and down 1.9%, respectively.
German carmakers Volkswagen VOWG_p.DE and BMW BMWG.DE, which have also been under pressure on uncertainty over how China might respond to the EU's new tariffs on imported Chinese EVs, rose slightly on the news.
Shares in BMW BMWG.DE, Porsche P911_p.DE and Mercedes-Benz MBGn.DE were up 0.1%, 1.1% and 0.6%, respectively.
"This looks like a negotiation tactic from China," Barclays' Whyatt said. "Can they persuade the EU to roll back some of the measures that have been imposed?"
FACTBOX-Spirits makers exposed to China's EU brandy probe https://www.reuters.com/business/retail-consumer/spirits-makers-exposed-chinas-eu-brandy-probe-2024-01-05/
Reporting by Alessandro Parodi and Ozan Ergenay; editing by Jason Neely and Shri Navaratnam, Kirsten Donovan
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