Treasury Wine Estates’ cup runneth over: BAML

Robust China sales will help Treasury Wine Estates double its return on equity over the next three years, says BAML.

A couple drink Australian wine in Beijing. (Picture: Shannon Fagan)

Booming China sales will help Treasury Wine Estates double its return on equity over the next three years by boosting the value of its $1.7 billion wine inventory, according to Bank of America Merrill Lynch analyst David Errington.

In a note released today, Errington said the winemaker (TWE) would increase its asset return from 0.4 to 0.6 per cent which will help double return on equity to 16 per cent.

Australian wine statistics released today showed the value of wine exported to China increased by 46 per cent by volume and 56 per cent by value to $739 million.

TWE is sitting on $1.7bn in wine and, as this week’s Penfolds release has shown, it is ratcheting up prices which is boosting the value of his sales.

Errington is forecasting revenue will increase from $2.4bn to $3.6bn in 2020, with earnings before interest and tax to increase from $449m to $877m.

TWE escaped major damage from the Californian bush fires, picking its wine early and thus avoiding smoke damage and is also selling to Asia against shortages in Europe due to frost damage.

TWE”s stock price has increased 40 per cent this year to $14.77 in late afternoon trade against four per cent increase in the overall market.

BAML is tipping this outperformance will continue.