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Treasury Wines’ CEO wants to uncork more shareholder value with demerger

The Treasury Wine Estates Ltd (ASX: TWE) share price has soared under its entrepreneurial CEO, Michael Clarke, and according to an investor update there be more opportunities ahead. 

The company grew ‘adjusted’ EBITS 25% in fiscal 2019 and is maintaining aggressive guidance for 15%-20% ‘adjusted’ EBITS growth in fiscal 2020. 

If achieved this would be some remarkable growth over two years as the company’s strategy to grow sales and lift margins via “premiumisation” pays off for investors. 

Over the past 5 years it has lifted revenue at a compound annual growth (CAGR) rate of 11% to produce an EBITS CAGR of 30% thanks mainly to EBITS margins lifting from 10.8% to 23.8% over the prior. 

On the back of this stellar performance and outlook its CEO has flagged the possibility of demerging the business to strike while the iron is hot and unlock even more shareholder value.

The basic strategy is reportedly to separate the premium wine brands such as Penfolds that deliver bumper margins from the portfolio of cheaper wine brands.

In order to complete any restructure effectively the cheaper brands would be merged with another large acquisition target in order to protect the portfolio’s value and strength.

For now these plans remain on the whiteboard so it would not make sense for investors to factor them into their view of the business. 

Treasury Wines’ rise has been remarkable, but it does carry a fair bit of debt and global wine trends can be volatile. As such I’m not a buyer of shares myself. 

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

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.

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