Treasury wines posted a strong result, and management commentary is particularly bullish.

Anytime management open with the words “we are pleased” you know you are in for a good outcome.


We too are fairly pleased, as we’ve been flagging this possibility (better than expected outcomes) for some time, having previously observed that all TWE needed to do, to generate attractive returns, was weather the storm of COVID.

Today’s comments match that perfectly, with focus shifting “from recovery to growth and innovation”.

The graph below highlights a key part of the story, namely the normalising operating income. The data is to the prior half, not the current (our systems are still drawing in the data from today’s result) but convey the idea fairly well, of the bounce back from pandemic impacts lows, that underpinned our confidence.

The premiumisation strategy (selling fancier, more expensive wines as a proportion of the overall product mix, and to exit some of the lower end, cheaper products) continues to work, with NSR per case rising by 16%.

Penfolds, and luxury brands are the vast majority of the business, by revenue, at some 83% of NSR.

Recall also that TWE was caught up in the trade and tariff wars, with the Chinese Ministry of Commerce announcing provisional anti-dumping measures (a duty of 175.6%), which aided an idiosyncratic element to the sell-off in TWE’s shares.

That’s why TWE has quantified (split out) the performance of China from, well, everything else.


Those duties will be there for another 4 or so years, but TWE continue to have success redeploying wine to other regions (e.g. the US) and to gradually work through the resulting glut of inventory associated with the lockouts (as it is hard to fully offset the decline, and here lockouts refers equally well to both the Mainland market, and to the lockdowns associated with the pandemic) without hammering margins or cashflows.

Further, given how challenging supply chain management is, in the current environment, we regard the flat outcomes on COBD margins as a particularly pleasing aspect of the result.

We remain happy holders in our direct equity portfolios.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

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