ASX:TWE
Treasury Wine Estates Ltd
Investment Summary
The fund managers believe that Treasury Wine Estates Ltd (TWE) faces near-term challenges due to concerns about consumer weakness, as evidenced by a 6% decline in May, making it the largest negative contributor to performance. However, they argue that TWE is largely shielded from this downturn as approximately 80% of its earnings come from luxury brands like Penfolds. The managers are optimistic about TWE's future potential, citing multiple growth levers, including the reopening of China post-tariff reductions, the integration of DAOU into its luxury-focused portfolio, and prevailing global trends toward luxury consumption. Furthermore, they highlight the opportunity to unlock value by divesting lower-tier brands. TWE's upcoming market update in June, featuring a US winery site visit and a global pricing update for Penfolds, is viewed as a significant short-term catalyst within a broader long-term strategy.
Commentary From The Managers
Blackwattle Investment Partners
30 May 2024
$11.02
- Treasury Wine Estates (TWE) was the largest negative contributor to performance in May, experiencing a 6% decline due to market concerns about consumer weakness.
- TWE is recognized as a luxury, global wine company, noted for its market-leading Penfolds brand.
- The market's focus on consumer discretionary sector earnings risk has been amplified by weaker trading updates from companies like Baby Bunting and JB Hi-Fi.
- However, Blackwattle Investment Partners believes TWE is largely protected from immediate consumer weakness, as ~80% of earnings stem from luxury brands.
- The wealthier consumer segment has shown continued resilience, which benefits TWE.
- Beyond short-term earnings challenges, there are several upside opportunities for TWE, including:
- Reopening of China with tariff reductions for Penfolds.
- Integration of DAOU into a global luxury-focused portfolio.
- Global trends towards luxury consumption.
- Potential value unlocking through divesting TWE’s masstige/premium portfolio.
- TWE plans to update the market in June with a US winery site visit and a Penfolds global pricing update, viewed as short-term catalysts for greater long-term opportunities.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.