US and Asian Markets for ASX listed Wine Stocks - TWE, AVG

  • Dec 10, 2019 AEDT
  • Team Kalkine
US and Asian Markets for ASX listed Wine Stocks - TWE, AVG

Wine market in Australia is slow but steady. This is mainly because of ageing population who are more worried about their health and because of the millennials who are not adopting the taste of wine as it was expected! The growth of alternative products such as cannabis, and creative participants from craft beer interfered with the growth of wine industry. Despite the above scenario, statistics show that Americans desire for the high-quality wine and are ready to spend some extra dollars per bottle, indicating that the wine markets need to be a little more creative than it was before. In the upcoming period, luxury, premium and popular segments and are expected to drive growth of the market.

The wine business in Asia is witnessing a sound expansion with Singapore representing a heart for distribution, China being a potential market due to its rising GDP and many other markets due to their growing consumption. Wine market in Asia can be seen as a single cultural alliance with different trends across the continent. Asian market in comparison to the U.S. is concentrated in younger population who are health conscious and are willing to embrace the new lifestyle of luxury. The market is being very creative for the millennials with the rose gold tint for the fashionistas, a naturally drought-resistant grape that produces juice.

Let us look at how two Australian wine stocks are performing!

Treasury Wine Estates Limited (ASX: TWE)

Ben Dollard as Operations President in the US: Treasury Wine Estates Limited (ASX: TWE) is in the international wine business having a portfolio of outstanding wine brands, prized viticultural assets and world-class production facilities. The company also delivered the shareholder value supported by its passion for crafting, marketing and selling quality wine for its consumers. The company has recently announced the appointment of Ben Dollard as President of the company’s operations in the US, replacing Angus McPherson who is unable to relocate due to personal circumstances.

Business Model: TWE is a vertically integrated wine business with three principal activities including Grape growing and sourcing, Wine production, marketing, sales and distribution. It secures access to grapes and bulk wine from leased vineyards, grower vineyards and the bulk wine market with a focus on securing increased access to Luxury and Masstige fruit across all its sourcing regions. With respect to wine production, TWE owns and operates eight wineries and two packaging facilities in Australia and several others in various countries. The company is improving its profitability and is generating its revenue from the production, marketing and sale of its portfolio.

Substantial Rise in EBITS: In the recently held Annual General Meeting of the company, the top management addressed the shareholders and stated that the company delivered another year of high-quality financial results with an increase of 17% in Net Sales Revenue. During the year, Group EBITS went up by 25% to $663 million, resulting in the CAGR of 30% in EBITS. The company has declared a fully franked final dividend of 20 cents per share, bringing the total dividend for F19 to 38 cents per share, up 19% on the prior year. Over the past five years TWE have made substantial changes in order to strengthen its business models, creating a significant competitive advantage. During the time span of 5-years, net sales revenue (NSR) went up to $2,832 million in FY19 from $1,857 million in FY15.

Net Sales Revenue and ROCE (Source: Company’s Presentation)

What to Expect: TWE is well placed to continue the successful execution of its premiumisation strategy in F20 and beyond. The company is prioritising to drive premiumisation through a focused portfolio strategy. It is also elevating in-store programming and digital marketing to enhance marketing spend efficiency and effectiveness. It sees a strong opportunity in North Asia owing to economic growth and an expanding middle class, growth in on-premise drinking options and booming e-commerce channels.

Stock Performance: The stock of TWE closed at $17.000, down by 0.701% on December 10, 2019. As per ASX, the stock gave a return of 11.60% in the past 6 months and a negative return of 5.62% in the last 30 days. As on date, the market cap of the company stood at $12.33 billion and is earning a dividend yield of 2.22%.

Australian Vintage Ltd (ASX: AVG)

Australian Vintage Ltd (ASX: AVG) specializes in wine marketing, vineyard management and wine making. In the recently held Annual General Meeting of the company, the top management addressed its shareholder and stated that NPAT (Net Profit After Tax) improved by 6% and stood at $8.1 million compared to last year’s profit of $7.7 million. During the year, Revenue of the company increased by $19.7 million to $269.2 million with significant sales growth in UK/Europe segment. The company also managed to decrease its net debt to $72.4 million (as on 30 June 2019) compared to $77.2 million as at 30 June 2018.

Dividend Distribution: The company declared a dividend of 2 cents per share. This was paid on November 8, 2019.

Future Expectations: The company is focusing on developing a world class branded wine company with an objective of wine quality and improving margins. It expects the FY20 cash flow to remain strong. It further anticipates having a negative impact on margins of around $3.6 million due to an increasing cost of wine. AVG is further expecting its Net Profit after tax to be up on last year by approximately 25%

Stock Performance: The stock of AVG gave a return of 8.51% on the YTD basis and a return of 7.37% in the past 3 months. The stock closed at $0.515 on 10 December 2019. As on date, the market capitalisation of the company stood at 143.16 million and the stock is trading at a P/E multiple of 17.590x.


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