Treasury Wine sees good times ahead

But one of their products may be a better investment

Australia’s largest listed wine maker, Treasury Wine Estates (ASX: TWE) has today reported a 31% jump in first half profit to $52.3 million.

Although the jump is slightly misleading, given 2011 was hurt by one-off costs following its spin-off from Fosters. Still it was a reasonable result, considering Australian wine makers are facing headwinds from the strong Australian dollar, bad weather and a glut of grapes globally.

Total volume was 16.5 million cases, down 2.5% on the previous period, resulting in a slight fall in revenues to $850.7 million.

The Americas accounts for half of Treasury Wine’s sales, so a strong Aussie against the greenback is a major issue. As a result the company is looking to increase its exports into Asia, where a rising middle class is likely to drive wine sales growth. That was reflected in an 11% rise in volumes to Asia during the half. Treasury Wine’s second half is expected to be better, with the company forecasting mid-single digit earnings growth for the full year to June 2013.

Treasury Wine Estates’ brands include Fifth Leg, Beringer Vineyards, Lindeman’s, Penfolds, Rosemount Estate and Wolf Blass, among others. This impressive portfolio –54 brands in total, representing close to 32 million cases of wine sold annually– is unmatched in the share market.

Competitor, Australian Vintage (ASX: AVG) recently announced a 6% fall in revenues, due to higher costs, reduced bulk wine demand in the US, and a decline in sales of lower margin products to the UK.

Foolish takeaway

Treasury Wine declared a 50% franked dividend of 6 cents, but most investors will be looking to the years ahead. Almost ideal growing conditions in 2012 had the company suggesting it was likely to have a very strong 2014.

Treasury Wine also invested more than $100 million into premium vineyards and winery assets in the six months to December 2012, setting itself up for growth in future. Although on a current PE ratio of over 38, expectations are already extremely high.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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