Can a new $165m ‘state-of-the-art facility’ help restore the Treasury Wine share price?

It has been a disappointing day for Treasury Wine shares on Thursday.

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Key points

  • Treasury Wine shares fell 3.49% today to $10.78
  • The company announced it has opened a new facility in the Barossa region of South Australia
  • Both Morgans and Citi believe the current Treasury Wine share price is undervalued

The Treasury Wine Estates Ltd (ASX: TWE) share price closed lower today following another tough day for many ASX shares.

At the closing bell, the winemaking and distribution giant’s shares were exchanging hands at $10.78 apiece, down 3.49%.

In contrast, the S&P/ASX 200 Index (ASX: XJO) ended the day down 1.75% at 6,941 points.

Treasury Wine expands operations

The Treasury Wine share price couldn’t seem to catch a break today, despite a seemingly positive announcement from the company.

Treasury Wines has unveiled a new $165 million state-of-the-art facility in the Barossa region of South Australia.

This is considered to be the largest premium winemaking site in the southern hemisphere, with capacity to produce more than 100 million litres of wine annually.

Treasury Wine further noted that its bottling operations in the Barossa are the biggest across its sites globally.

Up to 216 million bottles are packaged per year, operating four bottle lines, and exported to more than 70 countries. The site employs around 400 permanent team members and extends up to 600 during peak vintage periods.

Treasury Wine stated that the new facility provides it with the ability to increase premium winemaking capacity by 33%.

In addition, it also expands the company’s storage capacity.

What did management say?

Treasury Wines chief supply officer Kerrin Petty commented on what the new facility brings to the market. He said:

It’s a proud moment to unveil our new Barossa wine production facility, which has been two and a half years in the making through the challenges of the pandemic.

…The new site is purpose-built for premium winemaking with the flexibility to scale up or down production depending on demand, which is crucial given the ebbs and flows of wine production.

Sustainability has been front of mind throughout the entire project with the new infrastructure allowing us to manage the impacts of climate change on vintages and ensuring we can protect our most valuable grapes and produce the highest quality wine even in challenging years.

The new winemaking site also includes a 4,500m² Icon Cellar Building which represents global best practice for luxury winemaking and provides visitors with the VIP treatment to experience and tour the winemaking process.

What do the brokers think?

A number of brokers rated the Treasury Wine share price with similar price points following the company’s half-year results.

The team at Morgans cut its rating by 0.9% to $13.93, but believes there is still strong growth to come for Treasury Wine. This is due to the strong portfolio of “much loved iconic wine brands” and management’s recent restructuring.

Based on today’s price, Morgans’ 12-month price target implies a potential upside of around 29% for investors.

On the other hand, Citi also weighed in on Treasury Wine shares, cutting its rating by 0.1% to $13.78.

The broker thinks the company’s shares are currently trading at attractive levels. This is given the fact industry rival Pernod Ricard released a strong third-quarter update recently.

The French winemaker revealed its United States sales have accelerated, which could bode well for Treasury Wine’s North American business.

Treasury Wine share price review

Over the past 12 months, the Treasury Wine share price has been on a rollercoaster ride, posting an 8.5% gain.

However, when glancing at year to date, its shares are down almost 13%.

On valuation grounds, Treasury Wine presides a market capitalisation of approximately $8.06 billion.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia 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 Scott Phillips.

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