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Treasury Wine Estates Share Price: The Current FY21 Outlook Examined

We look at the winemaker’s new operating model and 2021 earnings guidance.

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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