What’s driving the Treasury Wine share price?
Treasury Wine’s investor day presentation includes a much needed financial update following China’s tariffs on Australian wine exports and the collapse of the A2 Milk Company Ltd (ASX: A2M) share price on Monday.
Expected FY21 earnings before interest, tax and SGARA (the difference between the fair value of harvested grapes and the cost of harvested grapes) is reported to be in the range of $495 million to $515 million. These figures are ahead of current market consensus expectations, representing a growth of 33% in 2H21 compared to the prior corresponding period.
From a margins perspective, Treasury Wine provided targets for its new operating divisions. This included Penfolds targeting 40-45% EBITS margin, including investment to grow distribution. Treasury Americas looking to maintain its 25% EBITS margin ambition. And finally, the Treasury Premium Brands targeting EBITS margin in the high teens.
The business as a whole has undergone a rapid transformation after its fall out with China and a renewed focus on growing premium and luxury offerings. The company is undergoing a global supply-chain optimisation program expected to deliver annualised benefits of at least $75 million by FY23, up from the $50 million announced previously.
In the long-term, Treasury Wine is targeting the delivery of sustainable top-line growth and high single-digit average earnings growth. To drive its long-term financial objectives, the company aims to continue the premiumisation of its sales mix, expand group EBITS margin to the target of 25% and restore its return on capital employed (ROCE).
Overall, the market appears to be pleased with where the company is headed from both a strategy, operational and financial perspective. The Treasury Wine share price has pushed 4% higher at the time of writing to $10.30. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has slumped 0.60%.
What about China?
Surprisingly, there was very little mention of China within the investor day presentation slides.
The company notes the “effective closure of Chinese market to Australian country of origin (COO) wine” but describes this situation as one that has exposed previously under-recognised opportunities. The presentation frequently used the term “ex-China” to discuss growth opportunities for regions such as South East Asia, India, Japan and Korea.
The Treasury Wine share price is higher following the company’s clear roadmap to deliver an improved financial performance without a significant dependency on China.
Looking ahead, investors can expect the company to focus more on its premium portfolio and e-commerce with a focus on North American, European and Asian (ex-China) markets.