The Treasury Wine Estates Ltd (ASX: TWE) share price will be one to watch on Wednesday following the release of its first-half results.
Here are key takeaways from the release:
- First-half revenue of $1,336.6 million, down 2.3% on the prior corresponding period.
- Earnings before interest, tax, SGARA and material items (EBITS) up 25% to $283.3 million.
- EBITS growth and margin accretion across all regions.
- Net profit after tax up 37% to $187.2 million and earnings per share growth of 38% to 25.6 cents per share.
- Excluding a one-off tax benefit EPS would have been 22.7 cents.
- Outlook: Aligned with current FY 2018 broker consensus EBITS forecast of $524 million. EBITS growth expected to accelerate to 25% in FY 2019
Overall I felt this was a strong result from Treasury Wine Estates and went some way to justifying the incredible rise of its share price over the last 12 months. Prior to today the wine company's shares had risen 46.2% since this time last year.
The highlight for me was its performance in the lucrative Asian market. Its Asia segment reported EBITS growth of 48% to $117 million during the first-half. Furthermore, it enjoyed an EBITS margin of 39.3%. Not only was this up 3.1 percentage points (ppts) on the prior corresponding period, but it was vastly better than any other segments.
The strong performance in Asia offset a slightly underwhelming performance from its Americas segment. This segment saw EBITS growth of 8% to $100.4 million on an EBITS margin of 19.9%. Its margin improved 3.7ppts on the prior corresponding period thanks to its premiumisation strategy, Diageo Wine synergies, and cost optimisation. It is also worth noting that the segment was subject to a one-off impact of $10 million from reduced shipments as part of its plan to change its route-to-market. These changes include the company selling direct to key retail partners in California and Washington.
Elsewhere, its Europe segment reported 17% EBITS growth to $24 million and an EBITS margin of 15% (up 3.4ppts), and its Australia & New Zealand segment reported EBITS growth of 28% to $68.2 million and an EBITS margin of 20.4% (up 4ppts).
Should you invest?
I think Treasury Wine Estates is one of the best growth shares on the market and certainly an attractive long-term investment. However, I would much rather by in at a lower price in order to gain a more compelling risk/reward.
After all, based on this result and the last close price Treasury Wine Estates' shares are changing hands at 45x trailing earnings.
In light of this, I would class it as a hold and believe more value can be found in fellow growth shares Aristocrat Leisure Limited (ASX: ALL) and A2 Milk Company Ltd (ASX: A2M).
