A few months ago, the management of Treasury Wine Estates Ltd (ASX: TWE) postponed the company's annual general meeting until December in order to better report to shareholders on the development of the two competing takeover offers for the company.
Since both of those offers were rejected at the end of September in the belief that they undervalued the company, shareholders are now left with a long wait to discover management's take on turning the company around.
As I covered in my earlier article, management felt that offers of $5.20 a share materially undervalued the company's prospects and, after consultations with major shareholders, terminated the offer since buyers would not match demands for a higher price.
Shares in the company slumped towards $4 before recovering to current prices of $4.65 a share, a level that I believe is too high given the likelihood of the company growing earnings.
While the company's improved strategy outlined in June looks promising, the identification of 2015 as a 'reset' year means that shareholders are unlikely to see many rewards over the next twelve months and the company looks to be expensive on this basis.
Investors must also factor in a history of poor decisions, writedowns, and underperformance, although there is now new management. There are also inherent risks in the wine market like long product lead times, rapid changes in consumer tastes and stiff overseas competition, which means Treasury Wines should be viewed in a more pessimistic light than might be otherwise called for.
With all of these things in mind I would recommend investors steer clear of Treasury for the next few months, and perhaps consider selling if you enjoyed a large price rise thanks to the takeover offer.
I personally would be looking for prices of $3.80 or under before considering a purchase, so in the meantime if you have to buy something from Treasury, choose their wines, not their shares.
A cheap, fast-growing market leader… and a much better bet than Treasury Wine Estates
