It has been a rollercoaster ride for the Treasury Wine Estates Ltd (ASX: TWE) share price after Chinese authorities slapped a brutal tariff on Australian wine exports. With the Treasury Wine share price being down almost 50% year to date, here's what the big brokers think following the major news this week.
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Provisional measure implemented on Australian wine imports into China
The provisional measure states that, commencing 28 November 2020, a deposit at a rate of 169.3% will be applied to the imported value of Treasury's wine in containers of two-litres or less. The provisional measure can remain in place until 28 August 2021 at the latest. The final determination of the anti-dumping investigation will determine if the measure will be maintained, adjusted or removed.
Treasury Wine response
In FY20, China represented approximately 30% of Treasury Wine's earnings. The company has been forced to come up with measures to mitigate the effects of the tariffs including redirecting products to other markets, accelerating marketing in other jurisdictions to drive demand and reducing global overhead costs.
Big broker updates on Treasury Wine share price
Brokers are divided between the fallout of Chinese sales and the opportunity for Treasury Wine to pivot its business into the rest of Asia, Europe and the United States.
Citigroup Inc (NYSE: C) lowered its Treasury Wine share price target from $10.40 to $8.20 with a sell rating. The broker warns that China's aggressive stance towards Australian wine imports will have a negative and long-lasting impact on the company and sector. While the broker noted there could be upside from North America operations, it regards the investment case as too risky.
Credit Suisse Group (NYSE: CS) upgraded the company from neutral to outperform and raised its price target from $8.50 to $11.00. In stark contrast to Citi, it believes that given the recent Treasury Wine share price falls, the worst is now behind the company and the tariffs are temporary.
Macquarie Group Ltd (ASX: MQG) retains a neutral rating and a $10.60 price target. There was no change in the broker's rating or target after reviewing the news of China's move. Whilst Macquarie believes there is an opportunity for Treasury to pivot to the rest of Asia, and US operations remain sound, the broker is concerned about downside risks to margins and sales.
Morgan Stanley (NYSE: MS) lowered its Treasury Wine share price target from $11.00 to $10.00. It lowered the price target but retains an overweight rating for now, albeit extremely cautious, because of the company's balance sheet strength and pivot options.
