Drink and be merry
In what has so far been a fairly lacklustre reporting season, one highlight has been the profit result of Treasury Wine Estates. Over the first half of the financial year, the company achieved EBIT (earnings before interest and tax) growth of 18%, on a constant currency basis and its profits from sales into Asia were up 67%.
Treasury Wine Estates is the former wine business spun out of Fosters, prior to its takeover by SABMiller. Within Fosters this business suffered from a lack of attention and poor management. However, as a standalone business I think it’s well placed to grow profits as it reshapes and refocusses towards more profitable wine segments and geographies, particularly Asia. Travelling in Asia it becomes evident that Penfolds premium wines have become popular and a symbol of status.
Approaching near $4, the stock appears a bit expensive in the short term. However, it has a solid balance sheet (almost zero debt) and good management. The new CEO, David Dearie, has a strong background in wine from his time at global drinks powerhouse Brown-Forman, prior to taking the top job at Treasury Wine Estates. Over the long term, I expect the stock to do well as new focus and priorities take shape.
Finally, Treasury Wine Estates remains one of only a few globally-branded consumer businesses still in Australian hands. I believe it may be attractive to other large global players sometime in the future.
Treasury Wine Estates is held in the following Perpetual funds: Australian Share Fund, Geared Australian Share Fund, Concentrated Equity Fund, Industrial Share Fund and SHARE-PLUS Long-Short Fund.
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