Stocks’ Details
Treasury Wine Estates Ltd (ASX: TWE)
UK wine market challenges: Treasury Wine’s stock plunged 3.7% on November 28, 2017 owing to rise in negative sentiments. For FY17, TWE had reported NPAT growth of 55% to $269.1 million while net sales revenue from ordinary activities were up 8.1% over last year. Meanwhile, the group had encountered some challenges with regards to the fires in Northern California owing to which there has been some small-scale damage to TWE’s infrastructures and sites. The group still faces challenges in UK wine market with a declining wine category while Australia and New Zealand 2017 harvests were of good quality. On the other hand, the group aims to have EBITS growth and EBITS margin accretion targeted in FY18 ahead of the earlier scheduled FY19 target. The stock still trades at a high level and given the prevailing uncertainty on the performance, we put an “Expensive” recommendation at the current price of $15.34
Broo Ltd (ASX: BEE)
Expansion of beer products in a lucrative market: Broo Ltd.’s stock has surged 31% in last five days (as at November 27, 2017) as the group announced about establishing strategic distribution partnerships for the Broo Premium Lager beer products in China, Broo, via its wholly owned subsidiary, Broo Export Pty Ltd. Particularly, the group has inked a Binding Agreement with Beijing Jihua Information Consultant Ltd to exclusively market and distribute the Broo Premium Lager beer products in China for 7 years, and will expand the sales and distribution of its products in a lucrative beer market leveraging Jihua’s distribution network. It is worth noting that the agreement is based on a ‘Take or Pay’ basis for 1.5 bn litres of BEE’s products for which a fixed rate per litre has to be paid by Jihua. The group had earlier indicated about pilot roll out programs been activated with Jinxing Beer Group targeting China market.
Meanwhile, BEE has undertaken initial production of its beer products at the acquired Mildura Brewery in Australia. BEE also entered into a National distribution agreement with METCASH subsidiary, Australian Liquor Marketers Pty Ltd (ALM) for its products to be offered onto the ALM beverage product portfolio. We believe that it will be prudent to watch the developments undertaken by the group considering that it is yet to unveil a healthy financial result given the operational updates. We give an “Expensive” recommendation at the current price of $0.39
Australian Vintage Ltd (ASX: AVG)
Decline in global wine production: Another small cap wine producer is Australian Vintage that can crush up to 120,000 tonnes a year. Total sales of its top three branded products have been 57% of the total sales. Total sales of all branded products make up 77% of all sales with the balance consistent of cask and bulk. With decreasing net debt and FY17 net profit after tax of $4.3 million over last year’s loss of $2.2 million, the group continues to focus on growing the export business and enhancing branded sales. However, there has been some impact from the unfavourable exchange rates. The group has also highlighted for a decline in global production in 2017 owing to climatic conditions and the same can pose pressure on supply of wine. While these challenges prevail, the group’s first 4 months of FY18 witnessed a 12% rise in packaged sales by sales value and 13% by sales volume, with improved sales in both the Australasian/ North America and UK/Europe segments. AVG now expects 2018 result to be at least 40% up on the 2017 result. We give a “Speculative Buy” on the stock at the current price of $0.445
Wine Show Performance (Source: Company Reports)
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