It’s been an intense 12 months for the Treasury Wine Estates Ltd (ASX: TWE) share price. The back-and-forth between Treasury Wine and China’s Ministry of Commerce (MOFCOM) has brought an extreme level of volatility to the company’s share price.
The final decision by MOFCOM effectively shut the company out of China, with an anti-dumping and countervailing duty rate of 175.6% to its Australian wine in containers of two litres or less imported to China.
Compared to other China-dependent growth stories such as A2 Milk Company Ltd (ASX: A2M), Treasury Wine was quick to reallocate its Penfolds Bins and Icon range from China to other markets.
A ‘new’ Treasury Wine emerges in May
Treasury Wine’s investor day presentation was one of the catalysts for its almost 16% jump in May to $11.64.
The presentation provided much-needed financial forecasts for how the business would perform without China. In the update, the business revealed that expected FY21 earnings before interest, tax and SGARA (the difference between the fair value of harvested grapes and the cost of harvested grapes) was going to be in the range of $495 million to $515 million, compared to the $533.5 million delivered in FY20.
Treasury advised that this figure is ahead of current market consensus expectations and would represent growth of 33% in 2H21 compared to the prior corresponding period.
The update also provided visibility to Treasury Wine’s long-term financial and operational goals. These include delivering sustainable top-line growth, achieving high single-digit average earnings growth, continuing with the ‘premiumisation’ of its sales mix, and expanding EBITS margin to the target of 25%.
Rather than viewing the effective closure of the Chinese market as a glass-half-empty situation, the company’s presentation saw it as “exposing previously under-recoginsed opportunities”. Moving forward, Treasury Wine is aiming to drive growth through multi-regional and multi-channel sales models. The United States has been established as a premium wine growth business and the company is also targeting growth throughout Asia and Europe.
The Treasury Wine share price closed ~6% higher at $10.84 on the day of the investor day presentation. But the company’s shares would also continue chugging along in May, finishing the month at a near 4-month high of $11.64.