Is now the time to invest in wine?

These two Australian wine makers may benefit from improving global conditions.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chairman of Australian Vintage  (ASX: AVG), Ian Ferrier, told his company's AGM on Wednesday that a high Australian dollar and continued oversupply throughout the industry had created a "protracted downturn" for wine businesses in recent times. However, he also forecast the company was positioned for growth as the economic cycle turns and the hangover lessens.

Evidence of the economic cycle potentially turning comes from an intergovernmental organisation — the International Organisation of Vine and Wine. Apparently, old-world European populations now consume less wine, while the Pacific markets, including the US and China, consume more.

Global wine consumption is now beginning to increase following years of steady, post-GFC decline. Remarkably, global production in 2012 was at its lowest level since 1975. These trends may tip the previously skewed supply and demand ratio back in the wine makers' favour.

Australian Vintage is the company behind the McGuigan and Tempus Two brands, and made a net profit of $7.1 million in financial year 2013. It recently guided that it expects profit to improve in excess of one-third in financial year 2014.

Earnings per share in 2013 were 5.3 cents, which would put the company on a low price to earnings ratio just over 8. In addition the company paid a fully franked 2.6 cents per share final dividend, placing it on an attractive yield of 5.9% at today's price of 44 cents. Equities broker Bell Potter reportedly has a price target of 55 cents on the business.

Investors looking for a more established business should consider Australia's largest wine producer, Treasury Wine Estates (ASX: TWE). It saw a share price slide after announcing a $160 million writedown to the market in July. This was due to excess inventory in its largest market of North America. Chief executive David Dearie was dumped not long afterwards with the company's strategy in the U.S being called into question. Low-cost competition from South American producers remains an issue for all Australian wine makers.

Investors had also been getting a little tipsy over Treasury Wine Estate's rapidly growing Asian sales, but news of the North American problems saw the price premium disappear. With solid long-term prospects, especially in Asia, the stock may be an opportunity at current price levels.

Foolish takeaway

Choose carefully and you can find a good wine at a good price. Company investors must also choose carefully and assess the risks. The weather, price competition, consumer trends and brand reputation among them. However, a weakening dollar and growing demand prospects mean these businesses are worth further research.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »