The Treasury Wine Estates Ltd (ASX: TWE) share price has jumped 6% at lunchtime to $11.10, however investors have been left scratching their heads as there’s been no recent announcements from the company to produce the spike.
The share price of Treasury, which owns the Penfolds, Blossom Hill, and Wolf Blass wine brands, is influenced heavily by tourist and overseas demand for Australian wines.
The main driver for the price surge appears to be a report from broker Morgan Stanley that noted “the recent surge in Australian wine sold to China isn’t a one-off event that will fade, but rather just the start of a golden period.”
This is great news for Treasury, as the company already has operations in China and it appears the company may be able to bump up shipments: “The largest impediment to purchasing more Australian wine, according to Chinese consumers, is availability, a problem that we think can be easily fixed and an area that TWE has already made strong progress in.”
Treasury is in a much better position now than it was a couple of years ago and analysts are still pointing to strong earnings per share growth in excess of 20% for the coming financial year. Investors could do much worse than investigating this company further as its exposure to growing Chinese consumption and the strong UK and US wine markets appears a good position for it.
Something to consider though is how competition from the likes of Australian Vintage Limited (ASX: AVG) may impact the company. Treasury’s iconic Australian brands will remain popular but the more ‘niche’ products developed by smaller producers may become the wine of choice, with higher margins/price points, in the future.
Another concern is Treasury’s spotted history when it comes to expanding – history can repeat itself and is often the reason why investors get sucked into rotten stocks.
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Motley Fool contributor Andrew Mudie has no position in any stocks mentioned. 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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