Treasury Wine Estates (TWE) has confirmed the accuracy of the 72% surge in its share price in the past year with a 72% lift in first half earnings to $146.8 million, and a one third boost to interim dividend.
The winemaker yesterday confirmed the previous upbeat guidance of late January (which has helped drive the share price higher) with a figure that was towards the top of that forecast of $140 – 150 million.
That upgrade saw the shares surge to a new high of $9.28 on January 22. The ended up 4% yesterday at $9.10 in a market that was up 2% in a big day of trading.
The shares have soared from just over $5 a year ago (when some investors questioned why it didn’t accept claimed offers around the $5.20 mark from private equity firms).
Instead the board rejected those suggested offers as being too low and have been proven right as existing shareholders have grabbed the benefits of the huge rise in price, instead of the private equity firm, its managers and investors.
Total revenue at Treasury rose 22% in the first half to $1.138 billion.
And earnings after interest, tax and the SGARA agricultural accounting standard, jumped 42% to $60.6 million for the six months to December.
Treasury said booming sales to China of brands such as Penfolds and Wolf Blass helped produce the surge in earnings in the half.
The company says that if this surge continues, earnings from its wine sales into Asia will soon match or exceed earnings from its sales into the Australian and NZ markets. That should happen in the current half.
Treasury lifted its interim dividend to 8 cents from 6 cents a year ago. That’s a fairly conservative payout ratio of 61%.
Profits in its Asian business more than doubled to $46.5 million in the six months ended December 31 from $20.5 million in the December 2014 half, and is expected to continue growing in the next few months, according to the company.
Treasury’s Australasian arm lifted profits by a more sedate 6% to $46.7 million in the December half.
Treasury said profit margins in the Asian operations were steady at 30%, double that of Australasia (15%) where the company sells most of its wines through the liquor chains associated with Coles, Woolworths and Metcash.
Treasury’s CEO Michael Clarke said yesterday the strategy of investing more in the company’s premium brands is paying off and profit margins should continue to rise over time across the company.
“I am confident margin accretion will be delivered over time as we continue to premiumise our portfolio," he said yesterday.
Treasury’s US business saw a 67% surge in profits on a reported currency basis, to $56.2 million. And earnings from Europe more than doubled to just over $17 million in the half year.
The big test for Treasury is integration of the newly-purchased wine portfolio of alcoholic beverages giant Diageo, which Treasury bought for $754 million in October. Mr Clarke has named a new head of the US business to oversee that and to implement the strategy of investing more in premium brands.
