The Treasury Wine Estates Ltd (ASX: TWE) share price is under the spotlight after the winemaker gave a FY24 update at the AGM.
It makes and sells a variety of different wine brands including Penfolds.
Trading update
The company said that its FY24 first quarter trading conditions were “consistent” with its overall expectations and it’s expecting continued strong demand for luxury wine and “resilient category dynamics” for premium wine, globally.
TWE said that it remains “well-positioned” to deliver growth in line with its long-term ambition, and deliver EBITS (EBIT explained) margin expansion towards the group target of at least 25%. Getting there could be a very useful boost for the TWE share price.
The wine business said that the growth will be supported by the strength of its global brand portfolio, its diversified business model, the benefits of its ‘key asset’ base and the cost optimisation initiatives delivered in FY23.
FY24 expectations
Management believe FY24 overall EBITS will be weighted towards the second half, which reflects its “planned and measured” approach to phasing of Penfold shipments, particularly for the Icon and Bin portfolio, so that it can retain “flexibility in its global distribution and pricing models.”
The company said this is a specific strategy in light of a future review of reviews on Australian wine in China. It expects that this will result in a split of group EBITS of 45% / 55% across the year.
As a reminder, its long-term financial objective remains to deliver sustainable top-line growth and high single-digit average earnings growth (being organic, pre-material items and on a constant currency basis).
In FY23, the company grew EBITS by 11.4% to $583.5 million, while the EBITS margin improved 2.9 percentage points to 24.1%. This helped grow net profit after tax (NPAT) by 16.6% to $376.1 million.
Final thoughts on the TWE share price
The Treasury Wine Estates share price is down today, but so is the S&P/ASX 200 (INDEXASX: XJO). It’s down around 20% from February 2023 and it’s still down around 35% from the January 2020 high.
It could be a longer-term opportunity, particularly if China starts buying large quantities of wine again. However, I wouldn’t count on it and it can be a risk to rely on Chinese earnings for long-term success – just look at what has happened in the last few years.
For me, there are other ASX growth shares that could be better choices.
