Treasury Wine Estates Share Price: The Current FY21 Outlook Examined

The New Treasury

As part of the Australian winemaker’s investor day last week, management provided a detailed set of updated FY21 guidance figures as well as an overview of the company’s new operating model.

Despite it being a challenging period for Treasury Wine Estates – off the back of a number of Chinese wine tariff hikes – the company remains confident in the long-term growth opportunities presented in its core markets.

Indeed, much of those focus of the financial guidance provided at the investor day was on the long-term growth ambitions on the company.

For example, over the long-term, the company is targeting a Group-level earnings before interest (EBITS) margins of ~25% while also looking to book 'sustainable top-line growth and high single-digit average earnings growth.'

For the immediate future, Treasury said it expected to book FY21 EBITS of between $495 million to $515 million – a forecast which the company said was ahead of market consensus.

The company also highlighted its new operating model, which is focused on three core business segments: Penfolds, Treasury Americas, and Treasury Premium Brands.

Under this new operating model, the company said it was aiming for the following margins on a division-by-division basis:

• Penfolds is aiming for EBITS margins of between 40-45%
• Treasury Americas is targeting EBITS margins of ~25%,
• Treasury Premium Brands is aiming for margins in the 'high-teens'

The company also took the chance to upwardly revise the benefits of its previously announced supply-chain optimisation program, saying it would now deliver annualised benefits of $75 million by fiscal 2023.

Treasury Wine Estate Share Price

The Treasury Wines share price (ticker: TWE) has performed strongly over the last five sessions, rising some 9.9% in that period, with the majority of those gains coming in the wake of the investor day.

YTD the stock is up ~15%.

Analyst Views

A number of analysts responded positively to Treasury’s market update, Goldman Sachs analysts were impressed with the above-market EBITs guidance while Macquarie analysts said the cost savings improvement update was a key positive.

Despite those positives, execution remains a key concern for TWE, as uncertainty continues to hang over the stock.

Macquarie analysts, who have a Neutral rating and $10.50 price target on the stock said:

‘We like the $25m+ improvement to annualised cost savings and positive EBITS guidance, but note execution on strategy and ability to reallocate volumes will be key.’

Goldman analysts, who also rate the stock a Neutral said:

‘Execution risks remain elevated for the company as it (and the industry) navigate the adjustment post Chinese tariffs.’

The investment bank has a 12-month price target of $10.60 on TWE.

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