Treasury Wine Estates Limited

TWE Details
 
Product-Innovation Led to Higher Business Prospect:Treasury Wine Estates Limited (ASX: TWE) is engaged in sourcing and production of grape along with manufacturing and distribution of wine. Recently, the company announced Ben Dollard as the President of the company’s operations in the Americas. His tenure will start from 13 January 2020.
 
FY19 Operational Highlights for the period ended 30 June 2019: TWE announced its FY19 financial results, wherein the company reported revenue from ordinary activities at $2,883 million, up 15.5% on y-o-y basis. Net profit of the company stood at $419.5 million as compared to $360.4 million in the previous financial year. The company reported EBITS (earnings before interest, tax, SGARA and material items) at $662.7 million, up 25% on y-o-y basis, while EBITS margin, during the period, came in at 23.4%. TWE reported ~27% y-o-y growth in its luxury and masstige brand, representing 69% of the total revenue. Within the Americas segment, TWE completed its first full financial year operating under the new route-to-market model and delivered business growth amidst operational change and sector specific challenges across the US. The company has successfully optimized the route to market model across Asia, while the business delivered outstanding growth in China, aided by leveraging the competitively advantaged business model and focusing on expanding the availability of Luxury wine. Australia and New Zealand (ANZ) reported 15% EBITS at $156.5 million, up 15% on y-o-y basis, driven by growth across the Masstige and lower Luxury portfolios. EBITS from Europe came in at $51.4 million, up 3.8% on y-o-y basis, aided by targeted investment behind priority brands in focus markets throughout the region.

FY19 Income Statement Highlights (Source: Company Reports)
 
Guidance: Within Asia, the company expects +35% y-o-y growth in EBITS margin, guidance maintained for F20 and beyond, aided by growth prospect across the Asian wine market on account of higher consumption particularly, at premium price points. Within the Americas segment, the business expects EBITS margin accretion based on the company’s focus on Building collaborative, long-term relationships with distributor and retail partners focused on expanding availability and distribution and – cost base and organizational efficiency to improve over time. Within the ANZ segment, the business continues to focus on maintaining higher than 25% EBITS margin for FY20. The Company will further focus on the on-premise category, while improving its performance through category growth initiatives such as Wine on Tap. The European segment expects FY20 EBITS margin at mid-teen in FY20, while the business will continue to focus on the key markets such as UK, Sweden and the Netherlands.
 
Valuation Methodology: P/BV Multiple Approach

P/BV Based Valuation (Source: Thomson Reuters), *NTM: Next Twelve Months
 
Stock Recommendation: The stock of TWE is quoting at $17.120 with a market capitalization of $12.38 billion. The stock has generated positive returns of 16.07% and 20.04% in the last six-months and one-year, respectively. The stock is quoting at the upper band of its 52-week trading range of $13.610 and $19.470. The company has offered innovative products, which provide greater choice in lower alcohol options for consumers. The business delivered an EBITDA margin of 26.1% in FY19, higher than the industry median of 18.9%. Net margin of the company stood at 14.6%, higher than the industry median and previous financial year of 8.3% and 13.6%, respectively. Considering the current trading levels, price-movement, growth across the premium category, innovative product offerings, and  business prospects, we recommend a ‘Hold’ rating on the stock at the current market price of $17.120, down 0.407% as on 09 December 2019.
 
 
 TWE Daily Technical Chart (Source: Thomson Reuters)

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