The Treasury Wine Estates Ltd (ASX: TWE) share price is up 12% at the time of writing.
Yesterday, the global wine business delivered its FY21 half-year result to investors, which showed a heavy profit decline. However, management also said they were more confident about a recovery in some aspects of the business.
Brokers have had their say about the company’s result and medium-term prospects.
If you didn’t catch the report yesterday, here are some of the main numbers:
Highlights of Treasury Wine Estates’ FY21 half-year result
The company said that its earnings before interest, tax, SGARA and material items (EBITS) fell by 23% to $284.1 million and the EBITS margin declined by 3.8 percentage points to 20.1%.
Underlying net profit after tax (NPAT) declined 24% to $175.3 million and underlying earnings per share (EPS) fell 24% to 24.3 cents.
Statutory NPAT declined 43% to $120.9 million and statutory EPS declined 43% to 16.8 cents.
On the positive side of things, Treasury Wine Estates said that retail and e-commerce channels continue to perform at elevated levels across all key markets, reflecting a shift in consumer behaviour towards in-home consumption of well-known and trusted brands.
However, there continues to be disruption to sales channels for higher margin luxury wine and reduced shipments to China because of the Chinese investigations and rules introduced relating to anti-dumping.
Despite the decline in profit, Treasury Wine Estates was still able to reduce net debt by $403.7 million and the board declared a fully franked dividend of 15 cents per share.
TWE is going to implement a new divisional operating model, aiming at maximising the benefits of a separate focus across brands, rather than regions. Those three new divisions will be: Penfolds, Treasury premium brands and Treasury Americas.
The company also said that it has progressed on key initiatives to deliver a future state premium wine business in the US, including the planned exit of a significant portion of the commercial brand portfolio. Treasury Wine Estates also said it’s going to explore the divestment and exit of other non-priority brands, operating assets and leases as it focuses on growing its premium brand portfolio to drive growth in the region.
Growing management confidence about re-allocating products
The company has been working on a response to the Chinese measures. TWE has increasing confidence about its plans for re-allocating its Penfolds Bins and Icon range from China to other markets.
It’s expecting to continue to engage with its customer and consumer base, with modest benefits to commence towards the end of FY21.
Broker thoughts on TWE
Morgans said that the report was better than it had expected thanks to the domestic market and Asia. The broker also pointed to an improving balance sheet and good cashflow. It said it would buy TWE shares if the share price were to significantly decline. It increased its price target to just over $11.
However, Citi wasn’t really convinced. It was impressed by the Asia result considering the China difficulties, but first half conditions are expected to continue in the second half. Citi still considers TWE shares as a sell, with a price target of $8.60.