Treasury Wine Estates Ltd

Delays in clearance on inventory replenishment:Treasury Wine Estates Ltd.’s (ASX: TWE) stock has fallen 3.48% in three months as on July 27, 2018. In the month of May, the company responded to market commentary and confirmed that the company is comfortable with the sustainability of its operating model in China, to build a portfolio of brands, and the company’s disciplined approach to manage inventory levels with its customers. Further, with regard to certain industries in Australia, the company is expecting a slowdown on clearance of imports into China. TWE has confirmed that it is also experiencing delays for some of its Australian Country of Origin shipments being cleared by the General Administration of Customs China (GACC) to replenish its inventory levels. Moreover, the company can allocate Luxury wines across regions, channels and fiscal years due to benefits of the global operating model. This also ensures that the brand scarcity is preserved and Luxury wine benefits from further maturation. TWE has the flexibility to manage as to when and where the wine is sold in the short to medium term. The recent wine export trends also look favorable for the group against what was anticipated earlier. Meanwhile, TWE is trading at a very high P/E with a market capitalization of $ 13.14bn. As a result, we give an “Expensive” recommendation on the stock at the current price of $ 18.410.
 

South32 Ltd

Decent Quarterly Performance:South32 Ltd (ASX: S32) is a blue-chip company with the market capitalization of circa $18.59 Bn as of July 30, 2018. Recently, it announced its fourth quarter results wherein the company achieved record performance at Australia Manganese and a 10% rise in total manganese ore production in FY18 at the back of higher demand across the region. Further, the company delivered another production record at Mozal Aluminium site in FY18 while South Africa Aluminium finished the year strongly, testing its maximum technical capacity in the June FY18 quarter. At 30 June 2018, the Group had completed US$620 million of its approved US$1 billion capital management program comprising of buy-back of 204 million shares at an average price of A$2.99 per share and a US$154 Mn special dividend which was paid on 5 April 2018.


Production Summary (Source: Company Reports)

On the other hand, the group started managing South Africa Energy Coal as a stand-alone business in the June 2018 quarter. This important milestone has allowed to simplify the Group and support to deliver a meaningful reduction in functional costs, further reducing industry-wide cost inflation. However, the process is broadened and transformation of ownership of South Africa Energy Coal is expected to begin in the September 2018 quarter. Meanwhile, the stock price was up by 4 per cent in past five days as on July 27, 2018. We maintain our “Hold” recommendation on the stock at the current price of $ 3.580.

 
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