Treasury Wines – Sellers are in Control

Treasury Wine Estates is under Algo Engine sell conditions and we highlight the recent softness in US sales data as a concern.

Sales within Asia continue to offset the US related weakness, however, we expect the TWE share price to remain under pressure.

Based on FY20 & FY21 EPS growth remaining in the 10 – 15% range, we have TWE EBIT growing from $660mn in FY19 to $850mn in FY21. This supports a forward yield of 3%.

We’re not holding TWE in our portfolio at present and we prepared today’s post on TWE as a reminder of the opportunity that lies ahead when the stock switches to buy conditions. We expect to see this in the first quarter of the New Year.

Downside target $15.50 – $16.50


Treasury Wines – Valuation Review

Treasury Wine Estates is under Algo Engine sell conditions following a lower high formation at $17.50.

Earnings continue to grow at 15 – 20%, although there is evidence that the growth rate is slowing.  If we assume total revenue in FY20 of $3bn on EBIT of $765mn, 15% earnings per share growth, we can support a 3% dividend yield.

On the above basis, we consider TWE fair value, but see little in the way of a catalyst to drive the share price higher. We therefore, recommend selling a covered call option to enhance the income return.


Treasury Wine – 1H19 Earnings

TWE 1H19 earnings met market consensus at $339m. 

Earnings from American markets exceeded expectations, whilst Asia was slightly below the elevated guidance.

Overall the result looks okay with continued EPS growth in the 20 – 25% range.

Based on EPS growth into 2020, we have TWE on a 2.8% forward yield.

TWE Surges Higher After Chinese On-Line Sales Decision

Shares of TWE have extended yesterday’s gains and are 3% higher at $14.70 in early trade today.

The catalyst for the sudden rally has been the Chinese government’s clarification of on-line sales regulations for offshore companies.

Prior to yesterday’s announcement, TWE and other online vendors were uncertain of the on-line sales protocol past December of this year.

So far this year, TWE has registered over $500 million in sales from the Asian region, led by sales to China, which make up over 20% of its total group sales.

The next chart resistance level is at $15.60 with a longer-term target near $17.90.

Treasury Wine Estates – Technical Bounce

CAR is one of the “GARP” (growth at a reasonable price), names that we’ve been tracking.

With the stock bouncing off the $11.00 price level, we suggest running a tight stop-loss below the recent “pivot low” and giving the upside momentum a chance to develop.

Within the back drop of market volatility, it is difficult to know how this trade plays out in the short-term. Therefore, we highlight the need to run a stop loss.

We consider ALL & TWE as similar technical opportunities.

TWE Has Reached Oversold Territory

Since posting an all-time high close at $19.85 on September 3rd, the share price of TWE has dropped over 30% reaching a 12-month low of $13.40 in early trade today.

This selloff has come despite the fact that the company has maintained their guidance for EBITS growth of 25% going into 2019.

Technically, the momentum indicators have reached an oversold level last seen in January of this year, which preceded a 23% rally over the following 2 months.

Treasury Wine Estates


TWE, SEK & CAR – Above Trend EPS Growth

TWE, SEK and CAR are all displaying current Algo Engine buy signals and are  therefore a holdings within our ASX100 model portfolio.

We recommend accumulating TWE stock within the $14.50 – $15.50 price range.

Seek is another name where above average EPS growth is likely to be achieved in FY19 & FY20.  We recommend accumulating the stock within the $17 – $18 price range.

CAR delivered a disappointing earnings update earlier this month, however, with the stock price correcting 25%, we now see value emerging.




High Growth Names – Buying Momentum In ALL & TWE

Over the last three years, ALL & TWE have been among the best performing stocks within the ASX100 model portfolio.

Both names now reflect a “higher low” chart formation and Algo Engine buy signals.

TWE’s 20% sell-off post FY18 results provides an attractive entry point.  FY19 EPS growth is still likely to be in the range of 15 – 20%.

Stay On The Buy Side Of Treasury Wine

TWE held their AGM last Thursday which was co-located in Hong Kong and Melbourne.

Chief executive ­Michael Clarke said earnings for 2019 would be bolstered by its new distribution model in the US, which was gaining traction with industry players, and its ability to deliver more luxury wine to its consumers.

He also reiterated his guidance for 25% EBITS growth in 2019 and noted that 1Q results were in line with internal plans for every revenue location.

In August, TWE reported a 34% jump in full-year net profit to $360 million as revenue fell by 1.5 per cent to about $2.5 billion.

Despite this upbeat news, TWE share price has been unable to hold above $17.00.

We consider this more a transitory function of the overall re-balancing of the ASX 200 Index, than a specific valuation issue with TWE.

As such, we suggest accumulating shares at current levels with an initial upside target of $19.40 and then $21.60.  Treasury Wine Estates