The Treasury Wine Estates Ltd (ASX: TWE) share price has dropped another 8% after giving a first quarter trading update.
What has happened with Treasury Wine Estates?
The wine business is holding its AGM today. As part of the proceedings, the business has given a trading update.
In Asia it has seen a progressive recovery in demand throughout the Asia region in the first quarter, with depletions up 14%. In China, positive momentum continued through the mid-Autumn festival and Golden Week holiday period. Management said consumption is normalising in key South-East Asia markets, but on-premise and travel retail channels remain impacted.
In Australia and New Zealand, the retail market is being driven by products with price points above $10, its ‘masstige’ portfolio is growing ahead of the market in Australia, it’s up 21% in the first quarter. Outside of Victoria, on-premise and cellar door outlets are resuming normal operations.
In the Americas, its ‘Focus 9 brands’ continue to perform strongly in retail channels and on-premise and cellar door outlets are reopening progressively. Treasury Wine Estates did report that there was some minor property damage and cellar door trade impacts from the California wildfires. There will be a smaller vintage to support rebalancing of industry oversupply, with the 2020 intake to be down on the prior year.
Finally, in Europe, the Middle East and Africa, demand through retail channels remains strong, where it saw 17% growth in the UK. However, channel closures continue to impact on-premise, travel retail and the Middle East & Africa business.
Other updates
Treasury Wine Estates said that its US business continues to progress and it’s considering various divesting of different brands and assets. It’s still working towards a 25% EBITS margin.
It has paused the potential demerger of Penfolds, though it still believes there is long term value in separating it from the rest of its premium brands. It’s focused on its trading performance, restructuring in the US and responding to the China Ministry of Commerce investigation.
Summary thoughts
Treasury Wine Estates is suffering a lot, there may be a good chance of a strong rebound in 2021, but there may also be some tariffs from China. At some point the market may become overly pessimistic. But I’m not sure what a fair price for the company is, particularly with the Penfolds demerger looking less sure. Fellow Rask Media writer Will Donnan considered Treasury Wine Estates in this article.
For me, there are other ASX growth shares that would be better buys in my opinion such as Pushpay Holdings Ltd (ASX: PPH) which I wrote about in this article.
