Why the Treasury Wine Estates Ltd share price soared 12% today

Credit: Rexness

What: Shares in global wine producer Treasury Wine Estates Ltd (ASX: TWE) have soared 12% this morning after the company provided earnings guidance above analyst consensus.

So What: According to the release the current analyst consensus forecast for earnings before interest, tax, and SGARA (self-generating and regenerating assets) for the six months ending 31 December 2015 is $120 million.

Meanwhile, Treasury Wine is expecting earnings to come in between $140 million and $150 million, suggesting the market was underestimating the group’s performance by at least 17%.

The market would appear to have not fully appreciated the full extent of the uptick in performance from the group’s Asia exposed business which has recorded increased shipments into the region ahead of Chinese New Year in February.

Now What: Treasury noted that the recently acquired Diageo Wine business was progressing well – the addition of the Diageo assets into the group have the potential to add meaningfully to the group’s performance in future periods.

Treasury’s guidance will no doubt have investors reassessing their forecasts for other food and beverage stocks with exposure to Chinese New Year celebrations. Amongst the companies which may be reviewed are wine-producing peer Australian Vintage Limited (ASX: AVG) and beef producer Australian Agricultural Company Ltd (ASX: AAC).

Treasury’s announcement is a timely reminder for investors that despite the current global equity market volatility which is at least partially in response to concerns about a hard-landing to the Chinese economy, there will still be niche businesses that can benefit from the rising consumption of the growing Chinese middle class.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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