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Treasury Wine Estates Ltd (TWE) $12.79

Chinas Ministry of Commerce announced last week they intended to remove one of its last major sanctions on $20 billion of Australian exports which were imposed when relations soured under the Morrison government – tariffs on Australian wine finally dropped to zero at the end of last month. Penfolds are extremely well positioned to leverage off the good but largely anticipated news with the brand remaining prominent in China, as they kept more than 100 staff in the country even after Beijing slapped the huge 175 per cent tariffs on its Australian exports – price rises are now set to follow on its top quality labels as demand looks set to significantly outstrip supply. The question we consider today is whether we should continue to hold the position after its almost 30% recovery from the 2024 low, or sit back and enjoy the ride.

The world’s second-largest economy is an extremely attractive wine market for TWE, which has been sorely missed over recent years, but now it’s set to create a more diversified revenue base for the Australian winemaker after it was forced to  evolve into other markets. The improving supply/demand dynamics are set to lift margins, with China the accelerant as America continues to reposition itself as a growing luxury wine market for TWE and especially its Penfolds brand. TWE has been planning for this day for a long time, and we believe the company is extremely well positioned to execute such plans moving forward, e.g. reallocate a portion of Penfolds luxury wine from other markets into China and expand sales & marketing into the region to re-establish its luxury labels.

Our simple answer to the question posed above is that we continue to like TWE, have been positioned for the move by China; hence, it’s time to enjoy the ride and not “buy on rumour, sell on fact”.

  • We like TWE initially targeting a test of $14, or 10% higher but ultimately we’re targeting +$15 – we own TWE in our Active Growth Portfolio.
MM remains bullish, and long TWE
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Treasury Wine Estates Ltd (TWE)
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