How long have you held the stock?
Since October 2014
What do you like about it?
It has some attractive macro tailwinds, with a weakening $A and the emergence of the Asian consumer as a growth engine. The lower $A makes Australia’s wine exports more competitive, as well as giving profits from its US Beringer wine business a translational boost.
Increasing incomes across Asia and China in particular have helped to drive increasing wine consumption, especially at the premium end. Treasury has been benefitting from this growth through its Penfolds and Wolf Blass labels.
There has been a slowdown in growth at the ultra-premium end, with China’s corruption crackdown, but this seems to be impacting more on French Bordeaux. Treasury is still seeing strong growth in this segment.
How is it better than its competitors?
The company has world-class brands, with a strong distribution network and a diversified grape supply. It has a more focussed approach in the luxury and masstige segments in the US and Asia.
What do you like about its management?
Michael Clarke has now been on board as CEO for about 18 months and is having a material impact on the company. He has invested more heavily in consumer marketing to build the brand portfolio, while looking to cut costs by reducing overheads and optimising the supply chain.
What is your target price on X?
$9.50, but that would move higher if the $A continues to fall.
At what point would you sell it?
Other than a significant appreciation in the share price, a sharp bounce in the $A would take the shine off the earnings outlook and could lead to a reassessment. While industrial activity in China has been weakening, retail sales have been growing strongly in line with incomes.
A hard landing in China and a slowdown in consumption growth could also dent the company’s earnings prospects.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has added over 1% to portfolio performance in excess of the market.
Is it a liquid stock?
Yes, it is in the top 100 largest stocks listed on the ASX and turnover recently has been in excess of $20 million per day.
Where do you see the value?
The company’s core strength is the quality of its wine and brand strength, particularly at the luxury end of the market. Shifting consumer preferences towards wine consumption and the emergence of a wealthy consumer across Asian markets will help to drive growth.
New management are doing a good job of refocussing the company to leverage off these strengths. The recent acquisition of Diageo’s wine brands at a good price will also deliver significant synergies and EPS accretion.
Treasury Wine Estates (TWE)
Source: Yahoo!7 Finance, 22 October 2015
*Sean Fenton is Portfolio manager with Tribeca Investment Partners. Tribeca funds are distributed by Grant Samuel Funds Management.
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