Treasury Wine Estates Limited

 
TWE Delivers Strongest Organic Sales Revenue Growth Ever: For the half year ended 31st December 2018, Treasury Wine Estates Limited (ASX: TWE) clocked a Net sales revenue of $1,507.7 million, up by 16% on a YoY basis. This growth in sales was witnessed on the back of YoY rise in revenue in the key geographical segments & markets where the company is operating. The Americas, Asia and Europe markets saw a growth of 20%, 32% & 10%, respectively in the NSR. The NSR of Americas grew on the back of positive execution under the new route-to-market modelcombined with underlying premiumisation, offset by increased costs of doing business reflecting new sales organisation, and including transitional overhead investment carried above the line, not in material items.
 
The company delivered an EBITS of $338.3 Mn for the stated period. This growth in EBITS can be attributed to the company’s premiumisation plan which has resulted in augmented availability of Luxury wine for the allocation in key markets.


TWE’s Financial Highlights (Source: Company Reports)
 
What To Expect From TWE: On the outlook front, the company’s long-term target is to enlarge its city distribution coverage by more than 50% in the next 3 years with increased allocations of Luxury wine. The management has stuck to its guidance for approximately 25% reported EBITS growth for financial year 2019, with a stable earnings outcome across the fiscal year.

On the financial metrics front, the company has a cash conversion of 53.5% which reflects top-line growth and timing of sales execution.The company has reported a ROCE of 13.3%, up 0.7ppts in 1H19. Thus, the company continues to deliver strong returns while investing in future growth. The net debt/ EBITDAS came in at 2.0x while the interest coverage ratio was 13.9x indicating a better leverage position and hence the company was able to maintain its investment grade credit profile.

Thus, considering the strong operating performance, robust financial position and decent guidance, we maintain our “Buy” rating on the stock at the current market price of $14.980 per share (up 0.201% on 10 April 2019) as it trades close to its 52-week low price, allowing the investors a decent entry point in the stock at the current juncture.
 

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