Wine Industry stocks: TWE, AVG

Wine production increased by 17 percent globally in 2018 due to increased population in France, Italy and Spain.

Considering Australia, in the 12 months ending on September 2019, wine exports rose by 7 percent to $2.9 billion increasing the average exports value by 16 percent to $3.74 per litre (which is the highest since 2008) whereas, the volume declined by 8 percent to 774 million litres.

China has the highest delivered and expected CAGR (2018- 2022F) of 9.8 percent in wine consumption, followed by Canada (1.2 percent), then New Zealand (0.7 percent).

Augmented reality is gaining a huge traction in wine industry and is holding centre stage on media, thereby, lifting the sales.

To enhance the user experience, AR offers wineries tech-based solutions such as adding videos of winery tour, tasting notes, tips for food pairing and many such innovative ideas to create and deliver their brands’ experience.

One such example is of Treasury Wine Estate Limited, which adopted the path of AR through its augmented reality app, in which the Company utilize labels to deliver a deeper story about its brand.

Let’s have a look at two wine producers, TWE and AVG, to understand their business, recent updates and financial & stock performances.

Treasury Wine Estates Limited (ASX: TWE)

ASX-listed wine company, Treasury Wine Estates Limited (ASX: TWE) was founded in 1843 in Hunter Valley, NSW, Australia. TWE has wide number of brands, including Penfolds, 19 Crimes, Wolf Blass, Matua and many others. The Company has about 3500 employees’, serves in more than 100+ countries covering 4 regions namely, Australia & New Zealand, The Americas, Asia, and Europe.

Resignation and appointment of CEO:

On 12 February 2020, TWE notified the market about its succession plans for the Company’s CEO position, which is as follows.

  • The present CEO, Mr Michael Clarke will retire from his position, effective from 1 July 2020.
  • Mr Clarke will be replaced by Mr Tim Ford from the same date.

Financial performance for the 1H FY20 ended on 31st December 2019

  • Net Sales Revenue grew by 1.9 percent pcp, from $1,507.7 million to $1,536.1 million
  • EBITS was $366.7 million, with accretion of 5.7 percent pcp. EBITS margin increased 0.9 ppts to 23.9 percent.
  • NPAT and EPS (before material items and SGARA) increased by approximately 5 percent to $229.2 million and about 1.9% to 31.9 cents per share, respectively.

Fully Franked Dividend Distribution:

  • The dividend distribution amounts to 20 cents per share which is fully franked. It reflects a 11.1 percent increase on pcp.
  • The record date of the dividend distribution is of 5 March 2020, followed by the payment date which is of 3 April 2020.
  • While viewing the Company’s annual dividends paid in last 4 years, the absolute value is increasing yoy.

As an outcome of HY20 results, the Company mentions following areas to focus in the coming time.

  • To regain the lost momentum in the US market by appointing team of full Americas leadership. This distortion occurred due to unfavourable US market conditions.
  • To maintain COGS pressures and Commercial trends encountered in all the operating regions.
  • To manage the Commercial wine business segment in a different manner on a global scale, which may get affected by the prevailing market conditions.

In addition to this, TWE also updated its Guidance for FY 2020 and FY 2021, subject to the uncertainties in the prevailing economic conditions.

  • For FY2020, the Company expects reported EBITS growth of 5 percent to 10 percent, whereas, for FY2021, it expects 10 percent to 15 percent EBITS growth.

Stock Performance of TWE:

On 14 February 2020, the stock of TWE ended the day at $ 11.29. The outstanding shares are approximately 719.95 million with a market capitalisation of nearly $ 8.05 billion. While the 52 weeks low and high price of the stock was noted at $ 11.010 and $ 19.47, respectively.

Australian Vintage Limited (ASX: AVG)

Australian wine player, Australian Vintage Limited (ASX: AVG) was founded in 1992 by Brian McGuigan. The Company have a dynamic portfolio of Australian wine brands, including McGuigan Wines, Miranda, Tempus Two, Passion Pop and Nepenthe.

AVG sales and distribution is spread across regions, namely The Americas, Asia, Australia, Europe, New Zealand and UK & Ireland.

Important facts about AVL:

  • Sells: 80 million litres of wine
  • Production facilities produces: 7 million cases of bottled wine and 1.5 million casks
  • 3rd largest global wine brand in the UK: McGuigan

Impact of Adelaide Hill Fire:

On 8 January 2020, AVL announced the probable loss from the hill fire in Adelaide where the Company owns 3 vineyards. Australian Vintage mentions that 30 hectares Charleston vineyard got impacted from the fire and around 200 tonnes of vineyard crop also got damaged.

Financial results:

On 20 November 2019, AVL released its AGM presentation providing highlights of FY 2019 as mentioned below.

  • Revenue was $269.2 million, an increased of $19.7 million pcp
  • Sale of three of the Company’s brand (McGuigan, Nepenthe and Tempus Two) increased by 10 percent
  • EBITS increased by 30 percent pcp to $21.7 million
  • Net Profit after Tax and before SGARA was $11.9 million, a huge increase of 48 percent pcp
  • Cash Flow from Operating Activities was $23.6 million
  • Net Debt was $72.4 million compared to $77.2 million as at 30 June 2018

Stock Performance of AVG:

On 14 February 2020, the stock of AVG closed at $0.465. The outstanding shares of the Company are approximately 280.71 million with a market capitalisation of nearly $ 130.53 million. The 52 weeks low and high price of the stock was noted at $ 0.42 and $ 0.54, respectively.


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