Italian drinks maker makes spirited case for French brandy

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Only fear and interest unite men, thought Napoleon Bonaparte. A deal involving his favourite brandy, Courvoisier, provoked the former in Campari’s investors on Friday.

Shares in the Italian drinks maker dipped as much as 5 per cent after it said it was paying $1.3bn for the brandy brand. The worry is that Campari may be overpaying. Sales of the French spirit are slowing after a decade-long boom. Courvoisier sales were down by a third in the year to October as US shipments fell. Campari’s profit margins will take a hit next year when the deal is expected to be completed.

Nonetheless, there is a strong structural growth story about brandy. Sales by value have expanded more rapidly than the broader spirits category over the past decade. Bernstein expects 8 per cent annual growth longer term, led by increasingly wealthy Chinese consumers.

Courvoisier is the number four brand in the segment, which is dominated by LVMH’s Hennessy. Its sales are skewed heavily towards lower-grade VS bottles. That makes it ripe for Campari’s premiumisation magic. 

Campari has a record of reinvigoration. Success has come from injecting new life into once-dusty brands such as orange liqueur Aperol. It continues to grow strongly.

Former chief executives of Moët Hennessy and Rémy Cointreau sit on Campari’s board. They should help guide Courvoisier forward. 

The deal is the final chapter for Bob Kunze-Concewitz as chief executive who departs for the board in April after 16 years in the role. Sales and profits have both grown at a 7 per cent compound annual rate over that time. Total shareholder returns of 600 per cent are twice that of the European sector. 

Longer term, Campari expects the deal to add 2 per cent to earnings. Those benefits are unlikely to reach before 2026. Adjusting expected earnings for that year then yields a multiple of 18.5 times. That valuation — a quarter below the five-year average — should be enough to steady investors’ nerves.