Wednesday saw TWE’s stock plunge -9.3% to its lowest level in more than a decade after the company announced an overhaul, including asset sales and cost cuts, as sales in the US and China slowed. It was worse at one stage with the shares gapping down over 17% after being in suspense before the news, but the bargain hunting only went so far. The Penfold producer also cancelled a $200mn buyback as it reviews planned capital investments – shame a great time to be in a position to buy your own stock. The underlying problem that the world is “drinking less” doesn’t look like it’s going away, making TWE hard to become excited about, even at around $5.
A recent clampdown by Beijing on boozy government banquets feels like the final nail in the company’s coffin at this stage of its cycle. The company had already written down the value of its US business by almost $690mn due to falling cashflows, making it hard to see how the company can drive sustainable top-line growth in the coming years.
- We believe TWE remains too hard, although it does feel that it’s in the eye of the storm, at least short-term.
MM is neutral towards TWE
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