Diageo ‘stronger’ than Pernod ‘on most counts’
Credit rating agency Moody’s has issued a report that claims Diageo has a “stronger credit quality” than Pernod Ricard based on the pair’s performances in key markets.
Moody’s backs Diageo has having a stronger outlook than rival Pernod Ricard
According to the analyst in its direct comparison report, Diageo has lower leverage and larger size and market share than its Paris-based rival.
Moody’s currently considers Diageo as an A3 business, an upper medium investment grade rating, while Pernod Ricard carries a Baa2 lower medium investment rating.
“Diageo’s organic profit growth benefits from strong US momentum, while Pernod’s growth remains constrained by China,” says Paolo Leschiutta, Moody’s vice president, senior credit officer and author of the report.
“Both Diageo’s and Pernod’s ratings assume a reduction in financial leverage in the next 12-18 months.”
The agency says both companies’ deleveraging will be supported by strong cash flow. However Diageo is expected to de-lever more quickly due to higher profit growth and likely positive impact of the weak pound.
Pernod will be able to partially offset a weaker China with a stronger India, Moody’s says, however the latter market has a lower profitability.
Looking forward, the report says it expects low single-digit organic profit growth for Pernod, with 4-5% growth predicted for Diageo.
Despite its headline conclusion, Moody’s does predict bigger brown spirit gains for Pernod, as the the company benefits from its established Cognac presence. Both firms have “strong positions” in whisky, the agency says.
In addition, Diageo is “slightly more exposed” to Brexit volatility as a large proportion of its sales go to emerging markets which hold EU trade agreements.
“The UK’s post-Brexit trading agreements will affect both Diageo and Pernod because of the importance of their respective Scotch whisky businesses,” the report concludes.
The Spirits Business has approached both Pernod Ricard and Diageo for comment.
