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Treasury Wine Estates Ltd (ASX:TWE) shares rise on trading update release: Should you invest?

The Treasury Wine Estates Ltd (ASX: TWE) share price has bounced back from a morning in the red and has pushed into positive territory this afternoon.

The wine company’s shares are currently 2% higher at $17.18 following the release of its annual general meeting presentation.

What was in the presentation?

As well as providing a summary on its solid performance in FY 2018, management provided a trading update for the current financial year.

The company’s chief executive officer, Michael Clarke, advised that he was pleased with how FY 2019 had started.

He said: “We are very pleased with the progress that we are making towards 25% EBITS growth in fiscal 19, with our disciplined approach to allocating Luxury wine ensuring a balanced earnings delivery across the fiscal year, and our first quarter trading performance is in line with our internal plans across all regions.”

As a result, the company has reiterated its guidance of approximately 25% EBITS growth this year, which will bring its five-year EBITS compound annual growth rate to 25%.

It also advised that it expects the new U.S. route-to-market operating model to be embedded in the second half of the financial year. This new model sees the company change 40% of its route-to-market.

Approximately 15% of it has been transitioned to new, highly growth-oriented regional distributor partners, and the remaining 25% is self-distributing. Management advised that early indicators are positive from the change.

In addition to this, management has reiterated its commitment to EBITS margin accretion and the journey towards an EBITS margin of 25%.

Should you invest?

I thought this was a positive update from Treasury Wine and was pleased to see its earnings growth guidance reiterated.

However, at 28x estimated FY 2019 earnings, I think its shares are about fair value now. While I wouldn’t be a seller of its shares if I owned them and believe it would be a great buy and hold investment, I’d personally prefer to buy in at a lower level.

In the meantime, fellow exporters A2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) could be worth a look. Though, they are volatile shares and not for the faint-hearted.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Treasury Wine Estates Limited. 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 Scott Phillips.

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