The Treasury Wine Estates Ltd (ASX: TWE) share price jumped on news that the alcoholic beverages group is adding a $280 per bottle French champagne to its Penfolds brand umbrella.
The TWE share price rallied 1.2% to $15.25 during lunch time trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index was trading flat.
The outperformance of the Treasury Wine share price stands in contrast to its consumer staples peers as well with the Coca-Cola Amatil Ltd (ASX: CCL) share price losing ground and Woolworths Group Ltd (ASX: WOW) share price just holding its head above water at the time of writing.
New product launch
Treasury Wine is counting on its new high-end offering to bolster sales and it's the first time Penfolds is adding French champagne to its range in its 175-year history, according to the Australian Financial Review.
The Penfolds champagne will be available from June this year and will be available in all key markets including China, United States, Australia and Europe.
Treasury Wine teamed up with family-owned firm Champagne House Thienot to launch the product, which is made with grapes from the 2012 harvest in France.
The news couldn't come at a better time for Treasury Wine shareholders with the share price coming under pressure recently on worries that the stock is looking expensive, the group exaggerated sales and after its chief executive Mike Clarke dumped $7 million worth of shares.
Going French to excite the Chinese
From what I've been hearing, I think the new Penfolds champagne will do well, particularly in brand conscious China.
I spoke with a smaller South Australian vineyard owner a few months ago who also exports to China and he thought the move was smart (the market had been expecting a French champagne product) given the brand reputation of Penfolds in China.
He also commented that Chinese demand for such luxury products has recovered following the corruption crackdown in that country some years ago.
Fine wine like Penfolds are a popular gift in China, particularly when one is trying to win favours from the political elite.
Foolish takeaway
While some critics warn that the Penfolds brand could be stretched too thin given the wide range of different alcoholic beverages on offer under the brand, the strategy has proven to be successful so far and there's no reason to think that Penfolds champagne would be any different.
Treasury Wines has a wine mixed with Baijiu drink in China that is proving to be very popular in that market. Baijiu is a traditional clear wine that is made from grain.
As for worries about valuation, the stock doesn't look expensive in my view, especially not after its recent sell-off. The stock trades on a FY20 consensus price-earnings multiple of just under 21 times – and that's not bad given that analysts are forecasting a close to 20% profit growth for next year.
But there's more than one way for ASX investors to get high – I am talking about high returns, of course. The experts at the Motley Fool have uncovered a stock that they believe is poised to outperform in 2019.
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