The Treasury Wines Estates Ltd (ASX: TWE) share price has more than quadrupled over the past 5 years, with Treasury delivering a 5-year total shareholder return of 321%. There may be even more good times ahead if management meets its ambitious forecasts over the next two fiscal years.
At its AGM today chief executive officer Michael Clarke told investors he was “pleased’ with performance over the first quarter but declined to provide specific details.
The CEO also stuck to guidance for Treasury to deliver 15%-20% EBITS growth in fiscal 2020. This would back up the 25% EBITS growth delivered in fiscal 2019, which would be remarkable growth for a wine retailer.
Powering the growth is the potent combination of rising sales and margins with fiscal 2019 EBITS margins up 1.6% to 23.4%. Margins are rising as the group behind the Penfolds brand and others continues to persuade US, Chinese and Australian consumers to pay more for their wine.
Treasury has also been a high profile target of short sellers but only has around 3.7% of its scrip shorted as at October 9 2019 which is relatively modest compared to the media attention the short sellers have created.
It does carry net debt of $750 million and operates in markets where demand can be volatile based on consumer preferences among other things.
Short sellers have also accused it of “channel stuffing” where wine is “sold” to wholesale distributors and the revenue booked before the wine is actually sold onto consumers. This kind of practice is not actually unusual in the consumer goods industry and Treasury Wines has dismissed the allegations as nonsense anyway.
I’m not a buyer of Treasury Wines shares myself, although it’s reported and forecast growth looks impressive on paper. Others looking to capitalise on the rising middle class in China include Blackmores Limited (ASX: BKL) and the a2 Milk Co. Australia Ltd (ASX: A2M).
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You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of and has recommended Blackmores Limited and Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. 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.