Morningstar

Morningstar, Inc.

Equity Bottom-Up

Shares of no-moat Treasury Wine have retreated over the past several quarters, falling 25% since hitting a high in early September 2018. We’ve seen various concerns cited, including accusations of channel stuffing in China, executional issues in U.S. distribution changeover, and the ongoing international trade wars. Nonetheless, we view these issues as well-managed by the company. Treasury has noted inventory in China remains at appropriate levels, while the route-to-market changes in the U.S…

No-moat Treasury Wine Estates’ first-half 2019 results keep the firm on-track to meet our near-term projections. Performance was solid, with good execution on distribution changes in the U.S. and continued market premiumisation in China leading to strong top-line growth of 16% versus the previous corresponding period, or pcp. Alongside this improved top line, Treasury enjoyed further profitability expansion. Earnings before interest, taxes, and expenses associated with the valuation of…

No-moat Treasury Wine Estates remains on track to hit its fiscal-year 2019 outlook for 25% underlying operating income growth, in line with our expectations, after reiterating this guidance at its annual general meeting. But we caution that despite a nearly 15% decline in the company’s share price since reporting full-year fiscal 2018 results in mid-August, we continue to believe Treasury’s stock remains overvalued versus our unchanged AUD 11.70 fair value estimate.
Analyst: Adam Fleck, CFA

No-moat Treasury Wine’s business remains a solid longterm growth engine, and we expect the business to enjoy further structural growth in China, market share gains from new product launches, and improving profitability from positive mix shift. But fiscal 2018 results show that the road could be bumpy along the way. Treasury saw underlying operating earnings in its Americas segment fall 1.5% from the year prior, as it works to restructure its go-to-market distribution strategy in the region. And…

According to the Australian Financial Review, or AFR, nomoat Treasury Wine is facing a supply glut in China. Per the AFR, several of the company’s wholesalers have complained of forced purchases of Treasury’s midrange wine brands such as Wolf Blass and Rawson’s Retreat to gain access to the popular and growing high-end Penfolds range. However, according to the wholesalers quoted, the demand for these non-Penfolds wines is substantially lower, leading to up to half a million cases of Treasury…

Australia

Treasury Wine Estates Ltd was founded in 2010 and is headquartered in Southbank, Victoria, Australia. The Company's line of business includes vineyard operations and international marketing and distribution of wine.