“Treasury Wine Estates (TWE) stands as a global leader in the premium wine sector, boasting an annual revenue of approximately $2.5 billion,” Jun Bei said.
“This distinguished company operates through three key divisions:
- Penfolds: A luxury wine brand with a strong global presence, recognised for its excellence in the ANZ (Australia and New Zealand) and Asian markets.
- Treasury Americas: Home to a portfolio of premium and luxury wines, including innovative names like 19 Crimes and Matua, tailored for the Americas region.
- Treasury Premium Brands: A collection of commercial and premium wine brands that demonstrate substantial growth potential, with a particular focus on ANZ and European markets.
“Since its listing on the ASX in 2011, following its spin-off from Foster’s, TWE has rewarded investors with a remarkable return of over 300%,” Jun Bei added.
So why does TWE stand out?
“TWE is our top pick in the portfolio, and for good reason,” Jun Bei said.
“It boasts an iconic portfolio of luxury brands, with Penfolds taking the spotlight.
“Despite recent challenges, including steep China import tariffs ranging from 100% to 200%, the company has showcased its resilience and adaptability.
“We firmly believe that TWE is now poised for double-digit earnings growth.
“Furthermore, the potential early relaxation of China import tariffs opens up additional avenues for earnings growth.
“TWE is not overpriced based on traditional valuation metrics and appears attractive relative to its historical averages and international peers,” she said.
So, what are TWE’s key strategic advantages?
“TWE’s success hinges on three key strategic advantages:
- A stellar brand portfolio: TWE’s brand line-up includes globally renowned wine names, particularly Penfolds, which stands as Australia’s premier wine brand worldwide. TWE has been expanding its collection of luxury brands, such as Stag’s Leap, BV, and the recent acquisition of Frank Family Vineyards. Moreover, the company has demonstrated its innovative prowess, with the organic development of 19 Crimes into one of the most widely embraced premium brands in the US, particularly among younger consumers.
- Outstanding management: TWE’s management team has exhibited extraordinary strength by orchestrating the company’s structural transformation. In 2021, when China imposed import tariffs of 100%-200% on Australian wine, TWE swiftly adapted, redirecting its focus to build a more robust business in the rest of the Asia-Pacific region. This shift allowed them to navigate these challenges without significant harm to the Penfold business’s sales or profits.
- China Growth Potential: We continue to view China as a significant growth opportunity for TWE. Recent developments have meant that the removal of the harsh tariff is going to take place in the not-too-distant future, and if TWE can meet the supply demands promptly, it could yield substantial earnings upside.”
Inflection point for Treasury
“TWE has arrived at an inflection point in its growth trajectory,” Jun Bei said.
“Since 2018, the company has executed substantial structural changes, primarily in its APAC and Americas operations.
“This restructuring involved divesting from lower-end commercial wine portfolios in the Americas in FY21 and diversifying the Mainland China Penfolds business after China’s import tariff hike in late 2020.
“This transition led to relatively flat sales and EBIT growth in recent years, but we foresee a turning point.
“TWE is now poised for double-digit profit growth over the next five years. Additionally, with its robust balance sheet, the company may present capital return opportunities in the near future.
“In conclusion, Treasury Wine Estates (TWE) isn’t just a wine company; it’s a dynamic investment opportunity in the world of premium wines.
“With a portfolio of iconic brands, excellent management and promising growth prospects, TWE is positioned for success.
“As we look to the future, TWE is well-prepared to capture the evolving landscape of the wine industry, making it a compelling choice for investors,” Jun Bei said.
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