Overall TWE have probably outperformed market expectations,...

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