The Treasury Wine Estates Ltd (ASX: TWE) share price slumped 10% before making a sharp recovery in just 3 days. Here’s why.
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The Treasury Wine Estates Ltd (ASX: TWE) share price experienced a full V-shaped recovery after its earnings report. Here’s what’s going on with the Treasury Wine share price.
Earnings recovery in first quarter FY21
Treasury Wine has experienced two consecutive missed earnings during the first half of FY20 and FY20. The challenging business conditions resulted in its share price nose diving from almost $18 at the start of the year to its $9.01 close on Monday.
The company’s first quarter FY21 announcement reveals a recovering business, riding positive underlying trends across its various operational geographies.
The Asian region is experiencing strong consumption levels of wine with Q1 depletions up 14%. Depletion is defined as units sold at retail to the end customer.
Various festivals and holiday periods in China including its mid-Autumn festival and Golden Week holiday saw sales momentum continue in Q1. Smaller Asian markets such as Southeast Asia also experienced a normalisation in consumption despite on-premise and travel retail channels being impacted.
Australia and New Zealand markets experienced an appetite for products above the $10 price point driving retail market growth. Its masstige portfolio is also growing ahead of the market, up 21% in Q1.
The American market has been the most challenging business division for Treasury Wine. It’s also been the region hardest hit by COVID-19 as a result of impacts to key sales channels and weak market conditions. On a more positive note, the company’s Focus 9 brand has been performing strongly in retail channels, growing 32% in Q1.
The UK market has also experienced a strong rebound in sales with its portfolio growing 17% in Q1.
Chinese investigations to subdue sentiment
Claims that Australian winemakers were selling bottles at below cost to crowd out local producers and claim a bigger market share resulted in China launching its anti-dumping investigation in mid-August this year.
Last week, Treasury Wine advised that the China Alcoholic Drinks Association submitted a written request to the Chinese Ministry of Commerce that imports of Australian wine in containers of two litres or less into China should be subject to retrospective tariffs.
Brokers mixed after share price dip
Big brokers have mixed opinions following the Treasury Wine share price sell off last week. However, the strength in the broader market and buying support is likely the cause for its V-shaped recovery to close at $9.01 on Monday.
UBS lowered its Treasury Wine share price target from $12.50 to $8.80 but upgraded its rating from neutral to buy. Its buy rating was on the basis of weakness in share price with the belief that long-term value exists.
Credit Suisse lowered its Treasury Wine share price target from $12.30 to $8.50 with a neutral rating. It blames the recent wine investigation and business risks due to the uncertain outlook for China sales.
Citi raised its Treasury Wine share price target from $10.05 to $10.40 with a neutral rating. It anticipates that the trade disruptions may be less than what the market is expecting.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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