Treasury Wine Estates Ltd (ASX: TWE) is facing a short attack by GMT Research, should investors worry?
Treasury Wines is a world-leader in wine making and brand marketing with some 13,000 hectares of vineyards available and around 3,400 employees across 70 countries. Some of more popular brands include Lindeman’s, Penfolds, Pepperjack, Rosemount, Yellowglen and Wolf Blass.
What Is Going On At Treasury Wine Estates?
Hong Kong outfit GMT Research, according to the Australian Financial Review, accused the winemaker of inflating “profits by up to 50 per cent over the last two years through the use of acquisition accounting to write-down inventories and establish other liabilities. Weak operating cash flow with a widening divergence from cash profits raises additional concerns that profits are being manipulated.
“Tell-tale signs include rising receivables and inventories which suggest possible channel-stuffing and deferral of overheads. The winding down of benefits from acquisition accounting may have left a hole in earnings; if we are correct, there is 35 per cent downside to A$10.60/share.”
As you can imagine, this caused investors to worry, particularly in light of the fact that Treasury Wine Estates CEO Mike Clarke had sold approximately $7 million of shares a few months ago.
The trade war between the US and China is not helping Treasury Wine Estates’ position. However, the company issued a response today.
Treasury Wine Estates Reacts
The winemaker said it was aware of the claims made by GMT Research. It said the claims made by GMT Research are “false and misleading”.
Treasury Wine Estates intends to release its preliminary financial results for FY19 on 15 August and will discredit the claims made at that time.
The company pointed to the fact it has already provided guidance on key metrics relating to the profit & loss, balance sheet and cash conversion and has no further comment.
In a bid to put the onus back onto the shorter, Treasury Wine Estates is asking ASIC to get involved and look at the timing and substance of the claims.
Until these claims are confirmed or refuted, I’m certainly happy to sit on the sidelines and wait to see what happens. The reliable and proven shares in the free report below could be easier to easier to hold for the long term.
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