Short and sharp attack on Treasury Wines

A US hedge fund manager has savaged Australian winemaker Treasury Wine Estates in a presentation to investors.

Treasury Wine Estates CEO Michael Clarke. Picture: David Geraghty

A US hedge fund manager has savaged Australian winemaker Treasury Wine Estates from the stage of a popular investor conference in New York, accusing it of inflating sales figures and alleging its key growth wine brands are actually in decline, but for now the market is backing the winemaker to keep its shares steady.

At the 24th annual Sohn Investment Conference in New York Angela Aldrich, founder and managing partner of Bayberry Capital Partners, was the only fund manager on stage at the conference to talk about an Australian company. And she singled out the maker of wines such as Penfolds, Wolf Blass and Lindemans for her short position.

Ms Aldrich listed a litany of operational and financial issues she believes are threatening Treasury Wine’s profitability and in a series of blistering slides accused the company of a number of unethical practices, capping off her presentation by arguing Treasury Wine’s share price has at least a 50 per cent downside.

Although shares in Treasury Wine opened almost 2 per cent weaker on Tuesday as news of the presentation filtered back to Australia, by mid-morning much of those losses had been taken back and by the close of trade Treasury Wine shares ended down 0.4 per cent at $16.17.

Investors have become highly attuned and aware of hedge funds pushing short positions and claiming a particular company was based on a “house of cards” — with Ms Aldrich using similar language — with ASX-listed Quintis collapsing after being targeted by hedge fund firm Glaucus and its next victim, Blue Sky Alternative Investments, clinging to life.

In a series of slides and talking points at the Sohn conference Ms Aldrich attacked the Melbourne-based winemaker and called out what she saw as major operational problems for the business in the US, as well as in its big growth and earnings market of China.

The Sohn conferences involve high-profile fund managers and investors talking about their big picks in equities, focusing on just one stock that they are investing in on behalf of their own investors. Typically a stock primed for super premium returns is chosen, but in this case Ms Aldrich chose to attack Treasury Wine and its model.

She said, after a recent run that has seen Treasury Wine shares rally by more than 350 per cent, she is now “short’’ on the Australian winemaker and believes it has at least 50 per cent downside.

She said the “bull’’ thesis for Treasury Wine was the huge growth opportunities in China and that Treasury Wine’s labels in the US, such as 19 Crimes and Beringer, were “killing it’’.

However, she said the real picture was Treasury Wine’s business in China was being undercut by counterfeits and 19 Crimes was facing slowing growth.

She also accused Treasury Wine of channel-stuffing — where sales figures are inflated by forcing more products through a distribution channel than the channel is capable of selling.

Treasury Wine said in a statement to The Australian: “TWE recently reiterated guidance to the market for reported EBITS growth of approximately 25 per cent for F19 and in the range of approximately 15 per cent to 20 per cent for F20. We are pleased with how the business is performing.”