What happened to the Treasury Wines Share Price?
Treasury Wine Estates Limited [ASX: TWE] closed 5.59% higher on Wednesday. TWE is a global wine company and the largest listed wine play in the world. Its portfolio includes well known wine brands such as Penfolds, Beringer, Lindemans, Wolf Blass and Rosemount Estate.
Why did this happened to the Treasury Wines Share Price?
The company is in the process of streamlining their product releases. Now the Penfolds ‘Bin Series’ and the Icon & Luxury Collections will be released together in October each year, rather than March and May as has been done in previous years.
This should reduce costs in the long term for the company. Additionally it is a strategic marketing play to position the products for the next six month festive period (Thanksgiving, Christmas, Chinese New Year and Easter).
What now for Treasury Wine?
The company downgraded its earnings forecast in January this year to $190–210 million. This was a $40 million drop from the anticipated $230–250 million expected at the start of the 2014 financial year. This announcement caused the share price to decline 19.6% over five days, with a year to date low of $3.19
Four months later the TWE board rejected a $3.05 billion takeover bid from private equity firm Kohlberg Kravis Roberts (KKR) of $4.70 per share. Since then, the stock has rallied past $5 per share.
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Some industry insiders have suggested the KKR bid was too cheap, and appropriate value is $5 per share.
TWE is claiming that the 2015 financial year will be the ‘reset year’. Streamlining costs and an aggressive marketing campaign (estimated to be around $17 million) are plans to increase sales of products.
Falling earnings, either speculated or confirmed, will see the share price fall again. However, if the company does achieve its earnings estimate, it could lift the stock beyond $5 per share. Treasury Wines pays a dividend of 13 cents.
Shae Smith+
Editor, Money Weekend
