The Treasury Wines Estates Ltd (ASX: TWE) share price has bubbled up around 4% after giving investors an update about business progress.
Why is the TWE share price up?
TWE gave a lengthy presentation to investors about how management are planning to change and improve the business.
The company is reshaping the business to be consumer-led and experience driven. Its new operating model should drive an increased focus and accountability for each division to deliver its long-term growth potential.
Penfolds, Treasury Americas and Treasury Premium Brands each have differentiated operational and financial priorities.
A sizeable part of the presentation focused on sustainability and it wants to lead the industry.
Environmental shift
The company is going to review its water footprint and usage at a catchment level. It plans to enhance its water strategy to help it respond to a changing climate and stakeholder expectations.
TWE revealed a number of goals. It said it wants to be using 100% renewable electricity by 2024, with net zero emissions (scope 1 and scope 2) by 2030. It’s also going to assess scope 3 emissions – that includes emissions that it’s not directly responsible for, but it has indirectly caused.
Other goals include 100% of product packaging to be recyclable, reusable or compostable by 2022, with 100% of packaging to comprise 50% recycled content by 2025.
TWE financial goals
TWE said it’s going to invest in technology – up to 25% of its total annual capital expenditure. This should lower costs, improve sales & marketing, improve the return on investment, help with its scale and deliver growing profit margins.
Over the long term it’s planning to grow its premium mix as a percentage of the portfolio, achieve sustainable revenue and profit (EBITS) growth, grow the EBITS margin (to over 25%), deliver strong cash conversion (over 90%) and expand its return on capital employed.
Not only does it want to grow its current brands, but it plans to acquire other premium brands and assets. Ensuring efficient capital management should lead to good earnings per share (EPS) growth and pay stable dividends with a payout ratio of between 55% to 70% of net profit.
TWE said it’s targeting a 5-year compound annual growth rate of EPS of 27%.
Thoughts on the TWE share price
This seems all very promising. A key part will be finding customers to buy all the wine volume at a price that achieves the above financial results.
I do think that the TWE share price could be a long term opportunity, as low as it is right now, alongside other attractive ASX growth shares. But the China demand problem is still an issue affecting the picture until TWE can diversify away or relations improve.
