Treasury Wine Estates Limited

Clarification on False and Misleading Claims: Treasury Wine Estates Limited (ASX: TWE) is involved into grape growing and sourcing, wine production and marketing, sales and distribution. The market capitalisation of the company stood at ~A$11.91 Bn as on 8^th August 2019. Recently, the company, with the help of a release clarified the market about a research report, which has been published by GMT Research. The research report makes claims in relation to TWE’s underlying operating performance. However, the company stated that the claims made under the research report are false and misleading. Moreover, Treasury Wine Estates Limited is referring this matter to the Australian Securities and Investments Commission. Additionally, TWE will be announcing its preliminary financial results on 15 August 2019 for fiscal year 2019, and at that time, the company would discredit the claims made in the report.

The company further stated that it has disciplined capital management, which is delivering sustainable returns.It reported lease adjusted net debt / EBITDAS of 2.0x in 1H FY19. TWE has refinanced bilateral bank facilities for commitments amounting to around $440 Mn. The company has liquidity which comprises the cash balance of $183.0 Mn and undrawn committed debt facilities amounting to $773.8 Mn.  The following picture provides the idea of committed debt facilities:


Committed Debt facilities (Source: Company Reports)

What to Expect: The company confirms continued positive momentum in Asia with record depletions delivered for the nine months to March 2019, which includes strong trading performance throughout the key Chinese New Year festive period. The company has reiterated guidance for reported EBITS growth of approximately 25% for FY 19, and for FY20, it is expecting EBITS growth in the ambit of around 15% - 20%.

Stock Recommendation: The company reported a gross margin and EBITDA margin of 41.9% and 23.8% in 1H FY19, reflecting YoY growth of 1.1% and 0.8%, respectively. The net margin of TWE stood at 14.3% against the industry median of 12.2%, which reflects that the company is effectively converting its top-line into the bottom-line. It delivered a return on equity of 6.2% against the industry median of 5.8%. This implies that TWE is providing feasible returns to shareholders in comparison to the peer group, which could attract the attention of market players. Currently, the stock is trading close to its 52 weeks high level of $19.90 with PE multiple of 30.33x. Hence, considering the above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$16.570 per share (up 0.06% on 8^th Aug 2019).
 

Australian Vintage Ltd

Appointment of New CEO: Australian Vintage Ltd (ASX: AVG) is into winemaking, wine marketing, and vineyard management. Recently, the company, with the help of a release dated 29^th July 2019 announced that Neil McGuigan has resigned as Chief Executive Officer of the company, which will be effective from 20^th November 2019 and appointed Mr Craig Garvin as CEO elect. Mr Craig Garvin would be appointed as the CEO on November 21, 2019.

In another update, the company stated that Allan Gray Australia Pty Ltd and its related bodies corporate, as investment manager for the funds or investment mandates had made a change in its substantial holding with the voting power of 18.15% in comparison to the previous voting power of 16.94%. As per the release dated 8^th March 2019, S&P Dow Jones Indices announced some changes in S&P/ASX indices. It was mentioned in the release that Australian Vintage Ltd was added to All Ordinaries. The change has become effective at the open on March 18, 2019.

In the 1H FY19, the company reported a net profit after tax amounting to $6.5 Mn in comparison to $4.4 Mn in the prior period.  It witnessed a growth of 8% in revenue for the same time period, with increased sales in the key segments of Australasia/North America and UK/Europe.The company posted positive cash flow from operating activities of $10.9 Mn in 1H FY19 as compared to $11.0 Mn as at December 2017.


Revenue Summary (Source: Company Reports)

Future Prospects: The company has continued its transformation to a quality respected branded wine business from a bulk wine company. The company stated that the UK/Europe segment had performed exceptionally well with a growth of 16% in sales. Additionally, the sales growth trend has continued in January 2019, and the company remains cautiously optimistic that improved UK sales will continue after Brexit.

Stock Recommendation: Australian Vintage Ltd delivered a gross margin and EBITDA margin of 28.2% and 8.2% in 1H FY19, reflecting YoY growth of 0.7% and 0.8%, respectively. It reported a net margin of 4.5% in 1H FY19 with YoY growth of 1.2%, which reflects that AVG is improving its capability to convert its top line into the bottom line. The company’s current ratio stood at 4.78x in 1H FY19 against the industry median of 1.52x. This implies that the company is well placed to meet its short-term obligations in comparison to the peer group. The stock of the company generated returns of 1.05% and -3.03% over a period of 3 months and 6 months, respectively. It is presently trading close to its 52 weeks low level of $0.420 with reasonable PE multiple of 13.71x. Hence, considering the above-stated facts coupled with decent outlook and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.470 per share (down 2.083% on 8^th Aug 2019).

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.