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With new strategy, is Treasury Wine Estates a buy?

Treasury Wine Estates (ASX: TWE) has announced a new marketing initiative that will see the company expand further into airport-based shops all over the world.

As The Sydney Morning Herald has reported, “Treasury is partnering with DFS Galleria to help it better engage with the travelling public, joining up with one of the world’s biggest owners of airport luxury shopping centres, and the millions of people which pass through its 14 airport department stores every year.”

As part of the initiative, the company plans to put particular emphasis on its own luxury brands, including Penfolds Grange. (This is “Australia’s most prestigious red wine” to hear the company tell it, while Wine Spectator has called the 2008 Grange “An utterly majestic Shiraz.”)

Singapore’s Changi airport will be the first port of call, with Treasury brands prominently featured in the airport for at least two months. Changi airport sees some 6,500 flights a week and more than 50 million passengers a year, according to its website.

Further plans and Asia initiative

Further promotions may be planned for airports in Sydney and Melbourne, as well as London, Hong Kong and Dubai. Such overseas markets are key to future growth for the company, which is hoping Asia especially will deliver growth in the years to come.

While for 2012 the company reported sales topping $700 million in the Americas and about $300 million for Europe and the Middle East, sales in Asia were just $106 million – suggesting that this market hasn’t yet been tapped. A corresponding consumer trend in which wealthy Chinese consumers are buying more wine could contribute to the momentum.

A strong performer, but watch that valuation

Following the company’s demerger from Fosters Group in May 2011, Treasury Wine Estates’ shares have packed on nearly 70%, versus a less than 2% rise in the S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) over the same period.

But as the old saying goes, past performance is no indication of future returns, and much of the future growth may already be priced in. Certainly the shares appear expensive today, trading for about 38 times earnings — the valuation equivalent of a fine wine. Investors may want to stick to drinking the product and avoid the shares until Mr. Market sobers up.

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Motley Fool contributor Catherine Baab-Muguira does not own shares in any company mentioned here.

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