Overall TWE have probably outperformed market expectations, driven by good volumes and maintaining a large portion of the China market, despite margins being impacted.
EBITS down 23% to $284m yoy (pre Covid essentially), but up 70% from 2H20 (during Covid) showing the worst has happened.
Revenue down only 8% from yoy, EPS down 24% to 24.3c (around 5% annualised earnings yield), DPS down to 15c (around 3% annualised dividend yield)
Margins declined 3.8% to 20.1%, which is quite substantial – increased competition and looking for markets to move volume, so not surprised, but perhaps more than expected.Driven ROCE down 4.1ppts to 9.5%.
On a regional level, Asia EBITS down only 28% as found alternative markets for wine headed to China, but margins down 4.9ppts to 38.2%.Americas EBITS down 15% to $83.1m, ANZ EBITS down 12% to $75.3m; EMEA EBITS down 22% to $25m
China: Export volumes were down much more than value, highlighting that the impact of China’s trade barriers on Penfolds/TWE would be less than previously expected.Results showed this, with China’s EBITS inreasin 103% from 2H20, though still down from 1H21.
Balance sheet strengthening, with net debt down $403m to $1030m.Inventory reduced, aiding cash flows. No other major changes, with previous emphasis on undervalued assets remaining in place.
Cash flows are up, driven by reduced inventories, lower CAPEX, less taxes.This enabled debt to be repaid and dividends to continue albeit lower.
Strategy of premiumisation and separating Penfolds continues, with divestments of non-core brands in US estimated at $300m (good for multiple expansion, not good for total earnings).
Outlook remains weak into 2H21, though main query is how long will margins remain compressed for? Can’t see improvement until 1H22 at the earliest.
@Bwatson I don't believe that the PE ratios are too high. Arguably for a luxury brand, they are actually quite low when compared with Louis Vuitton / Moet Hennesy around 60; Remy Cointreau around 95; Estee Lauder around 110; etc. Even Diageo which is similar to TWE (alcoholic beverages, mixing premium and basics) is at 62. So if the value of Penfolds (intangible assets, branding names and licenses) is $952m, then splitting that off would make it at least $2bn when conservatively comparing it with it's global peers.
If you would like to see more of my analysis on TWE, I share it on Tw'tter (at)DownunderValue
TWE Price at posting:
$9.90 Sentiment: Buy Disclosure: Held
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