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Treasury Wine Estates share price surges 12% on FY20 results

We examine the key takeaways from Treasury’s full-year (FY20) results.

TWE Source: Bloomberg

Treasury Wine Estates share price jumps following FY20 release

The Treasury Wine Estates (TWE) share price jumped 12.33% on Thursday – closing out the session at $12.85 per share – after the Australian winemaker released its full-year (FY20) results to the market.

With Treasury already guiding for lower earnings – today’s report, which revealed significantly lower profits (NPAT) and earnings per share (EPS) – should have come as little surprise to investors. Rather, investors look to have zeroed in on a number of positive details within this latest market update, including improved demand within the Chinese market.

Mind you, while Treasury has seen its share price surge today, the stock continues to trade well of its 52-week highs, still down a little over 20% in the last year.

Full-year results unpacked

On the top-line, Treasury reported net sales revenue of $2,649.5 million, representing a year-over-year decline of 6%. This decline was attributed to a challenging US wine market and more broadly to the coronavirus pandemic.

TWE saw steeper declines across its bottom line, with earnings (EBITS) hitting $533.5 million (-22%) – a figure which it should be noted came in line with prior guidance. Profits (NPAT) came in at $315.8 million, down 25%, while earnings per share came in at 43.9 cents, down 26%.

Despite significantly weaker earnings, the company declared a final, fully-franked dividend of 8 cents per share, taking TWE’s full-year dividend to 28 cents per share – equal to 64% of profits (NPAT).

Analysts from Citibank argued that this final dividend ‘most likely indicates some stabilization of earnings, particularly in light of China demand improving late in FY20e.’

Looking at the company’s Asian market performance in more depth, Treasury observed particularly positive trends in the fourth quarter, flagging both a stronger e-commerce performance, while also 'seeing consumption and sales depletion recovery across the portfolio, particularly in June.' In China in particular, depletions rose 13% in the final quarter of FY20 and accelerated 40% in June.

Commenting on this release more broadly, analysts from Citibank, describing FY20 as a difficult year for the company, noted that looking forward:

‘The focus is restoring EBITS margins to 25%+, but we are cautious that this will be struck off a smaller revenue base than consensus expects. The shares are likely to be well supported by better commentary on Asia, but likely to remain volatile given the uncertain outlook.’

Indeed, despite positive trends emerging in the Chinese market, uncertainty remains dominant for TWE, with the company’s Chief Executive Officer, Tim Ford, stressing that:

'While we have recently seen positive signs of recovery across a number of our key markets and channels, we are cautious on the near-term outlook given the uncertainty that remains around the pace of the recovery.'

As a result of that uncertainty, Treasury said it would not be providing FY21 earnings guidance.

The stock closed Thursday at $12.85 per share.

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