We have sold our investment in Treasury Wines following an investment update at the Macquarie Annual Conference in May.
The expectation of the removal of China wine tariffs was well anticipated by market participants. TWE’s earnings profile in the coming years should be a beneficiary of the resumption of luxury wine sales into China. However, the benefits will be incremental in value in the near-term. Any meaningful uplift in earnings will likely occur from FY27 onwards. While TWE has diligently prepared for the China re-opening stock levels of Penfolds will need to be replenished, at time when wine consumption in China has fallen. Penfolds has the dual challenge of increasing capacity of Penfolds through replanting and sourcing an adequate supply of quality grapes and rebuilding its luxury brand in China.
Trading conditions for TWE’s premium and commercial wines remains challenging both in America and Australia. It was evident that the recent third quarterly sales results for the major liquor groups in Australia that sales were comparatively soft, as consumers reduced their discretionary spending and prioritized value.
While we acknowledge that TWE is employing the correct strategy of focusing on building its luxury brand portfolio, the catalysts for an uplift in earnings quality will be deferred to the medium-term.
We have used the proceeds from the sale of TWE to add to CSL and James Hardie.
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