Is Treasury Wines forming the perfect blend?

Luxury goods continue to be prevalent in today’s society driven by growing affluence and rising disposable incomes globally. With that, the luxury wine market is thriving with solid growth in the Asia-Pacific region. Treasury Wine Estates is one of the world’s largest producers of luxury wines and is positioned for ongoing growth with its re-entry into a significant global market. While the business has seen limited growth in recent years, this looks set to change following strategic acquisitions and rising demand for its globally renowned Penfolds brand. So, can Treasury Wine Estates get you raising your glass? Let’s find out. 

• Treasury Wine Estates is poised for growth with strong brands like Penfolds and a strategic re-entry into China’s lucrative market.
• The luxury wine market is set for continued growth, which looks set to drive Treasury Wines to double-digit earnings growth over years ahead. 
• Analysts are bullish with 13 buy ratings, 4 holds and 0 sells, reflecting confidence in Treasury Wine Estates’ robust global strategy and premium portfolio.

View Treasury Wines

The Basics

Treasury Wine Estates (TWE) is Australia’s largest wine producer and one of the biggest in the world, serving consumers in over 70 countries, including Australia. The company owns a broad portfolio of brands that includes Australian labels such as Penfolds and Wolf Bass. Treasury Wines boasts internationally acclaimed vineyards and production assets in the Barossa Valley in Australia, the Napa Valley in the USA, Bordeaux in France and Tuscany in Italy. 

The business makes its revenue through three segments: Treasury Americas (33.9%), Penfolds (33.8%), and Treasury Premium Brands (32.3%). For years, China was the key market for Treasury Wines through its Penolds brand until a shock move saw China impose hefty tariffs on Australian wines at the end of 2020. This saw the business diversify its customer base and expand its global footprint, acquiring DAOU Vineyards in the US for USD$900 million in late 2023. But, in March 2024, those tariffs were removed, opening the lucrative Chinese market back up. The luxury wine market is set for continued growth, and Asia Pacific is the region set for the fastest growth thanks to rising affluence.  

Competitor Diagnosis

The global wine market is highly competitive, and producers must build relationships with consumers to build brand loyalty. Treasury Wines has done this exceedingly well in Australia, with its Penfolds brand being the most valuable alcohol brand in Australia in 2023. However, it faces stiff competition from producers such as Accolade Wines, Casella Family Brands, and Pernod Ricard Winemakers. 

The slowdown of Treasury Wine exports to China saw the gap filled by other regions, with France stepping up as the number one exporter of wine to the region in 2023. Therefore, returning to the market will result in fiercer competition. Speaking recently, Wu Mingfeng, General Manager of Penfolds in China, said: “The top ten wine brands collectively hold just 30% of the market share, while the remaining 70% is contested by over 3,000 brands.”

With the Asia Pacific region set for solid growth in the luxury wine market, Treasury Wines announced in June it would increase its headcount in China by 67% to help meet growing demand in the region. China’s wine market has shrunk, with imports falling almost 60% from their peak in 2018, but that doesn’t mean it will stay this way forever. The company believes China’s wine market is entering a seven-year growth cycle.

Financial Health Check

With China cut off for a number of years, Treasury Wines saw revenue fall by 4% in fiscal year 2023. However, that is set to change for fiscal year 2024, with sales set to grow by 14%, bolstered by Penfolds and Treasury Americas. 

Importantly, though, the company’s bottom line is growing at a solid rate. The market expects double-digit earnings growth over the next five years from 2024 onwards, thanks to the removal of those Chinese wine tariffs, solid growth in the US and rising prices. The business has navigated a number of challenges very well over the last four years, including the pandemic, tariffs, and higher grape prices. Growth has slowed, but the fallout has been limited, and the business now relies less on China. This points to good management, with the company laying the groundwork for future growth in that time, which is beginning to bear fruit. Luxury goods, including high-end wines, often show resilience during economic downturns as affluent consumers maintain their spending habits.

Shares currently trade at around 23x FY4 earnings and 19.5x FY25 earnings, which likely doesn’t fully represent the business’s growth potential over the years ahead, potentially creating an attractive entry point for investors. However, risks are still on the horizon, including China’s spluttering economic recovery and competition. The business also has a healthy dividend with a net yield of 2.69%, which would likely grow if management continues to execute in the years ahead.

Buy, Hold or Sell?

Treasury Wine Estates has established itself in two of the biggest markets in the world, the United States and China, both essential to ongoing earnings growth over the years ahead. With additional growth in other international markets to go alongside, the business looks to be in an excellent position, with its luxury Penfolds brand a standout for wine enthusiasts globally. 

Given the company’s growth trajectory, analysts are bullish. According to Bloomberg’s Analyst Recommendations, Treasury Wine Estates has 13 buy ratings, 4 holds, and 0 sells, with an average price target of $14.25, signalling a 17% upside. 

With a robust portfolio of premium and luxury wine brands, Treasury Wines has established itself as a key player as demand for luxury wine continues to grow. Its re-entry into China won’t be straightforward, but it has the potential to positively affect earnings, giving the stock a strong tailwind.  

View Treasury Wines

eToro Service ARSN 637 489 466 promoted by eToro AUS Capital Limited ACN 612 791 803 AFSL 491139. Capital at risk. See PDS and TMD. This communication is general information and education purposes only and should not be taken as financial product advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial product. It has been prepared without taking your objectives, financial situation or needs into account. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.