The Treasury Wine Estates Ltd (ASX: TWE) share price could pop today after announcing a long term agreement for its US portfolio.
What’s the TWE US agreement?
Treasury Wine Estates has announced an agreement with The Wine Group regarding several of TWE’s commercial tier brands from the US portfolio.
The Wine Group will source and sell the Beringer Main & Vine, Beringer Founders’ Estate, Coastal Estates and Meridian brands in the Americas.
TWE also said that The Wine Group will acquire existing inventories associated with these brands on a progressive drawdown basis and will assume responsibility for related future bulk wine supply contracts.
Management comments
Treasury Wine Estates CEO Tim Ford said: “We are delighted to be entering into this long term transaction with The Wine Group, which will be of mutual long term benefit to our respective organisations. For TWE, this transaction is a significant milestone towards our plans to deliver the future state premium US wine business and we can now focus solely on continuing the growth of our premium brand portfolio to drive future performance in the Americas.”
TWE’s plan and the financial impact
TWE recently outlined in its FY21 half-year result that it’s implementing plans to deliver a premium focused business in the Americas with broadly half the volume and similar earnings. Over time the plan is to progress towards the target regional EBITS (EBIT explained) margin of 25%.
The company expects to generate one-off net cash inflows of at least A$300 million as part of these plans.
Today’s announcement will make cash proceeds of approximately $100 million. TWE said that was a meaningful step towards the stated goals.
Summary thoughts
Treasury Wine Estates is seemingly making the right moves to recover and grow its business. Whilst nothing can replace the demand from China, it’s good to see that TWE is looking for other solutions.
I’m not sure what a fair price to buy TWE shares is at the moment, with all the changes and disruption is going on. I think it could still do fairly well over the shorter term, but it’s hard to know what the long term looks like at this stage.
