Is Treasury Wine Estates a buy?

The Treasury Wine Estates (ASX:TWE) share price has seen a significant rise today, up as high as 3.69% during morning trade. Here's a closer look at why.

| More on:
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 Treasury Wine Estates (ASX: TWE) share price has seen a significant rise today, up as high as 3.69% during morning trade and sitting on 2.81% time of writing. With the ASX 200 up less than 1% for the day, TWE's outperformance merits a closer look.

What's behind Treasury Wine's recent performance?

The $12.6 billion wine producer and distributor has operations in Australia, New Zealand, Italy and the United States (US), and exports wine globally. It has seen significant growth, particularly in exports to Asia. The growth of the middle class in China has been a boon for TWE, much as it has been for other food and wine companies serving the growing Chinese demand for high-quality imports in these areas.

This success in the Chinese market has boosted TWE's performance, but it also leaves the company exposed to any events that affect China and Chinese trade relations. TWE has seen some real volatility throughout 2018 and 2019. Much of this has correlated roughly with volatility on the ASX in the same time period, but it's worth noting that in early September 2018 TWE fell earlier and harder than the ASX did on fears of a US–China trade war. From a high of $19.85 on 3 September 2018, it sank as low as $13.52 on 21 November that year. At $17.56 at time of writing, TWE has yet to return to its highs.

With the US and China as Australia's two largest trade partners, Aussie shares are always likely to suffer when tensions rise between these two economic giants, but with so much of its recent growth having come from China and China's immediate neighbours, TWE could be particularly vulnerable.

Of course, this also mean that the inverse could be true. Any easing of tensions or hint of compromise between China and the US would likely be good news for TWE.

TWE's annual results, released Thursday last week, saw the best growth in constant currency net sales revenue in the company's history. Earnings before interest and tax grew in line with the company's expectations, up 25%. 

TWE targets a dividend payout ratio of 55–70% of net profit after tax. With a full-year dividend for FY19 of 38 cents, it was firmly on target at 62.9%.

Foolish takeaway

Treasury Wine Estates remains vulnerable to a renewal of international trade tensions, especially as they affect China. Any potential investors should consider that risk before buying. However, with a healthy financial performance, a solid dividend payout ratio and a share price trending upwards towards its previous highs, it should certainly be on your watchlist.

Motley Fool contributor Tyler Jefferson has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and 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.

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 »