What does the future hold for Treasury Wine (ASX:TWE) after China's tariff?

The Treasury Wine share price has been on a volatile ride after China's trade tariff was imposed. We look at how the company has responded.

| More on:
note pad with the words 'what's next' written on it representing uncertainty surrounding mcmillan share price

Image source: Getty Images

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 proposal by Treasury Wine Estates Ltd (ASX: TWE) to spin off its Penfolds business was put on hold recently to allow the company to focus on responding to China's trade tariff and the ongoing anti-dumping probe by China into imports of Australian wine.

As tensions between Australia and China escalated, Treasury Wines responded to the tariff at the end of November. The Treasury Wine share price then tumbled to a near 5-year low, trading at $8.40 as of 1 December.

Response to trade tariff

 Treasury Wine's response plan included the following key items:

  • reallocation of Penfolds Bin and Icon range from China – which represent 25% of the company's annual global Penfolds allocation volumes – to other key luxury growth markets including Asian markets outside of China, Australia, the US and the Europe.
  • reallocation of luxury grape sourcing to other premium Australian portfolio brands, which have been significantly
    supply constrained over recent years.
  • acceleration of its multi-country of origin portfolio growth strategy, with a focus on growing sourcing from its existing asset base in France and potentially from China.

In the week or so following the release of its response, the Treasury Wine share price has risen by 9.5% to $9.20.

International support 

More than 200 parliamentarians from 19 countries have formed an alliance called the Inter-Parliamentary Alliance on China Policy (IPAC). This is led by global legislators who are senior politicians aiming to maintain a free, open and rules-based international trade order.

The alliance recently demonstrated its support for the Australian wine industry in response to this wave of Australia–China trade tension, via a global campaign calling for people to drink Australian red wine in December.

Treasury to diversify away from China

A research report out of Bell Potter estimated that the tariffs from China will impact Treasury Wine's earnings in the near term, and thus the broker lowered the company's target share price to $8.20.

In response to the collapse in demand, Treasury CEO Tim Ford said (as quoted by Business Times): "We are moving on with a plan…to build the markets outside of China, and that's what we'll continue to do."

Bank of America analyst David Errington also noted that Treasury Wine will now be focusing on other markets (as quoted by Business Times): "Treasury Wine will most likely divert about 1.5 million cases a year from China to other markets by 2023, and China's earnings contribution to the company would almost halve by then."

About the Treasury Wine share price

The Treasury Wine share price currently sits at $9.20 as of 9 December, up 9.4% from its 1 December low. Treasury Wine shares are down 43% in the year to date, leaving the company with a market capitalisation of $6.67 billion.

Motley Fool contributor MWUaus has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A hipster-looking man with bushy beard and multiple arm tattoos sits on the floor against a sofa reading a tablet with his hand on his chin as though he is deep in thought.
Share Market News

ASX 200 dips on RBA interest rate decision

The ASX 200 gave up some of its intraday gains following the latest RBA interest rate announcement. But why?

Read more »

A man sees some good news on his phone and gives a little cheer.
Share Gainers

Why Capitol Health, Infratil, Newmont, and Race Oncology shares are charging higher

These shares are having a good session. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Beach Energy, Fortescue, Kina Securities, and Melbana Energy shares are dropping today

These shares are missing out on the good times today. But why?

Read more »

A young woman wearing overalls and a yellow t-shirt kicks one leg in the air showing excitement over the latest ASX 200 shares to hit 52-week highs
52-Week Highs

CBA, DroneShield, and these ASX stocks just hit 52-week highs

These shares are flying high on Tuesday. What's going on?

Read more »

Man smiling at a laptop because of a rising share price.
Broker Notes

Macquarie shares have 10% upside: Morgan Stanley

Another bullish broker on Macquarie.

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Broker Notes

Is the ANZ share price 'the best value of the major banks'?

ANZ shares are in the green ahead of the Reserve Bank's next interest rate decision today.

Read more »

Two kids in superhero capes.
Small Cap Shares

2 ASX small-cap shares I'd buy for massive growth potential

I’m bullish about these two stocks.

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Buy 'em now! Brokers name 3 ASX All Ords shares to add to your portfolio

Copper, technology, and healthcare are the themes among these newly buy-rated stocks.

Read more »