Australia | Mar 15 2023
This story features TREASURY WINE ESTATES LIMITED. For more info SHARE ANALYSIS: TWE
Doubling down on lines aimed at a younger, more loyal, demographic, Treasury Wine Estates has unveiled its One by Penfolds collection as a gateway to premium offerings.
-Treasury Wine Estates showcases its One by Penfolds collections at recent investor day
-The company reiterated a focus on lines that would attract younger consumer to the wine segment
-The strategy is to transition those younger consumers to luxury offerings
-Strength in luxury wines likely to underpin growth strategy in other segments
By Danielle Austin
At its recent investor day, Treasury Wine Estates ((TWE)) took time to showcase its One by Penfolds collection, and discuss ambitions to sell 300,000 cases. The One by Penfolds collection, which will include wines from Australia, France, North America and China, was launched in China over the first half with a global launch slated for the first half of the coming fiscal year (FY24); the lower price point compared to the core brand is meant to encourage a transition to premium offerings.
Having concentrated its portfolio in the luxury wine segment over recent years, Treasury Wine expects it can benefit from global trends moving to favour more premium end drops. At the centre of the new strategy sits the core Penfolds brand, which should offer some support as the company explores its relationship with other demographics.
Outside of Penfolds, UBS (Buy, target price $15.00) finds the company’s 19Crimes brand to also remain pivotal to recruiting new consumers to the wine category. While premium wines remain a key focus for Treasury Wine, the company continues to expand and diversify to secure market share. Management discussed intentions to expand the portfolio both in terms of wine varietals and price points.
The company acknowledges it remains under-represented in the $15-30 price segment which it considers a key gateway to introducing younger consumers to premium offerings. UBS posits 19Crimes offers key opportunity for innovation. The broker does highlight the trading environment appears challenged, with young consumers having access to a broad range in options. The company is also targeting expansion into select categories, including sparkling wine, rose and low- and no-alcohol wines.
Morgan Stanley (Overweight, target price $15.40) likes that bringing new consumers into the wine category remains a key focus for the company. This broker finds bringing in younger consumers to be core to the sustainability of the company’s business model. While noting 19Crimes was a key driver of first half weakness, Morgan Stanley expects reinvestment in the brand will drive volume growth in the second half.
Goldman Sachs (Buy, target price $14.70) equally appreciates the company’s focus on the younger consumer, and its understanding that the earlier a consumer is recruited the better the loyalty. This broker feels commentary from the company marks a switch from playing a defensive position to an offensive strategy.
Reiterating five-year financial targets at the halfway point
Now halfway through its five year strategy, Treasury Wine Estates has reiterated its financial targets for FY25. Macquarie (Outperform, target price $14.90) expects the global shift towards premium wines to support the company’s margin targets, with management confident in its ability to deliver sustainable top line growth alongside long-term high single digit earnings growth.
Citi (Neutral, target price $14.25) highlights the company also announced intentions to double revenue and profits for the recently acquired Frank Family vineyards, which it wants to be the producer of the number one luxury chardonnay in North America.
Jarden (Overweight, target price $13.60) feels the market is beginning to prescribe some value to Chinese tariffs ending earlier, a scenario it expects would provide material upside to earnings per share in FY26 if it were to eventuate.
FNArena's consensus target, which excludes Goldman Sachs and Jarden, currently sits at $14.27, suggesting a double digit percentage gain for the year ahead, while consensus forecasts suggest the dividend yield is 2.8% and 3.2% for FY23 and FY24, respectively.
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