10 pullback from previous high......
Another new sp valuation
Treasury Wine Estates upgraded to $24 by Bank of America Merrill Lynch
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Bank of America Merrill Lynch is bullish about the outlook for Treasury Wine Estates.
Bank of America Merrill Lynch analyst David Errington has slapped a $24 price target on Treasury Wine Estates, lifting his earlier valuation of $21 after a tour of the winemaker's Barossa Valley wine production facility.
The upgrade was driven by the winemaker's local operations. Errington argues there is plenty more upside to his forecasts if Treasury is successful in its US strategy and in re-designing its distribution model.
Errington argues the industry has entered an upturn in a wine cycle that typically has a long duration – 20 years.
"The upturn is happening with little (to no) supply response to the tightening market conditions," Errington says in a note to clients.
"This is caused by (amongst other things) a lack of finance available to wine producers to fund their inventory holdings."
Errington believes Treasury Wines, which makes Penfolds, Wolf Blass and Rosemount, is the best placed local producer to increase production of luxury wines.
The analyst has increased its discounted cash flow valuation to $26.63, with a blended valuation of $24.
Errington expects sales to triple from fiscal 2017 levels to $7 billion by 2030, boosted by expansion in Asia and executing on its US strategy.
Sales are expected to peak in 2021.
Treasury Wine shares were trading 3 per cent higher at $19.75 and have risen more than 50 per cent in the past 12 months.
TWE Price at posting:
$17.93 Sentiment: Buy Disclosure: Held
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