Treasury Wine Estates Ltd. (OTCPK:TSRYY), headquartered in Southbank (Victoria) Australia is the world's largest pure-play listed wine company with over 80 global brands, 11,000 hectares of vineyards, sales of 32 million cases of wine annually, and revenues of about AU$1.6 billion. It employs more than 3,500 winemakers, viticulturists, sales, distribution and support staff across 16 countries.
Until its demerger in May 2011, Treasury Wine Estates was the wine division of international brewing company Foster's Group. David Dearie, appointed CEO at the time of the demerger, served previously as Managing Director, Australia and New Zealand Wine for the Foster's Group.
Pricing and Profits: TSRYY.PK is currently priced at $6.13 with a 52-week price range of $4.10-$6.32. Year-to-date TSRYY.PK is up 28.48%, with a one-year return of 40.90%. The company is listed on the Australian exchange as TWE and is up 44.83% YTD, briefly hitting a new high on May 20, 2013 of AU$6.47.
Treasury Wine Estates has a book value of AU$4.51. TTM dividend yield is 2.05%.
Treasury Wines Estates reported a net income of $53 million for the six months ending December 2012, a 31% increase from the previous six months. The increase topped estimates projected by six analysts surveyed by Bloomberg.
Volume and a Wide-Moat Portfolio of Brands: As the world's second-largest wine company, Treasury Wine Estates offers premium-quality and mid-level wines by brands such as Lindeman's, Beringer, Castello di Gabbiano, Chateau St. Jean, Stag's Leap, Penfold's, Rosemount Estate, Souverain, and Meridian. Unlike many small wine entities, Treasury Wine Estates has more flexibility to go high market, really high market or mid market, depending on the geographic area (Middle East, U.S., or China), the current economic climate, and the world supply of wine, which can vary dramatically.
Company Leadership, Expertise: Treasury Wines Estates has a knowledgeable and experienced CEO in David Dearie as well as an excellent senior executive staff. And equally, if not more important, it has in place a worldwide staff of winemakers, viticulturists and wine marketing specialists skilled at moving into mature markets such as the U.S and into developing ones such as in China and the Middle East.
Positioning for Expanding Asian Market: In a recent interview on Bloomberg.com ("Treasury Wine Sees China as World's Largest Market in 10 Years"), CEO Dearie laid out a few fundamentals. Treasury Wine Estates hopes to boost sales to about 60 cities in China within five years from less than 16 at present as it tries to capitalize in Asia, its fastest-growing and highest-margin market.
Revenue at its Asian unit rose about 10% for the six months ending December 2012 from a year earlier, according to data compiled by Bloomberg
"Treasury hasn't been affected by a frugality drive by the government of President Xi Jinping even though about 40 percent of purchases are for business occasions, Dearie said. The challenge we have now is we just don't have enough supply to satisfy demand," he said.
According to Dearie, Treasury Wine Estate's focus in China is to sell premium mass market wines to consumers between the ages of 20 and 45 with annual disposable income of 150,000 to 200,000 yuan ($24,100 to $32,100) a year.
As mentioned recently in a Seeking Alpha article on the Chinese wine consumer, sales of wine has been facilitated by such online sites as Yesmywine, where Treasury Wine Estates brands are shown regularly in its large opening photo stream.
Future Downside Risks: The major ongoing risks for Treasury Wine Estates are economic downturns and ensuing wine gluts or wine shortages brought about by weather conditions and climatic changes.
And while China is viewed as a major developing market of huge proportions, there will be growing competition from new and expanding local wine brands in China and the establishment of China-based vineyards in cooler climates supporting larger yields. Treasury Wine Estates is better positioned to deal with these risks than many other global wine entities seeking major stakes in Asia.
Conclusions: Treasury Wine Estates has shown in a very short time to be nimble at juggling a range of brands appealing to wine consumers in a variety of global markets. Not an easy task, but this young company brought with its demerger from Foster's both expertise and a history that is invaluable, even in the "wine-trade" as it operates today.
TSRYY.PK has great potential. Cautious investors interested in buying may want to watch this stock for the short-term and develop a position over time during down-drafts. For the long-term, recent and planned developments suggest a very solid buy. For a contrasting view, though evolving toward the more positive, see the consensus forecast by 13 polled investment analysts in the Finanical Times coverage of TWE.
The Australian version (TWE) of the stock is also available in minimal amounts within several ETFs, including WisdomTree Australia Dividend Fund (AUSE) at .97% of holdings; and First Trust Asia Pacific Ex-Japan AlphaDEX® Fund (FPA) with .70% of holdings.
Mutual funds holding minimal amounts of TWE include American Funds Capital Income Builder A, American Funds Capital World Growth and Income A, Oakmark International Small Cap I (1.43% of holdings), and Vanguard Total International Stock Index Investors.