It's not often that a company sees a massive geographic market shut down overnight.
But that's exactly what happened to Treasury Wine Estates Ltd (ASX: TWE) in 2020.
It was a frightening time when the first wave of COVID-19 broke out around the world.
There were no vaccines yet, and economies tanked around the globe after individual freedoms were curtailed to stop the spread.
In a not outrageous suggestion, the Australian government called for an independent study into the origins of the pandemic.
Unfortunately, China took exception to this. Beijing retaliated by imposing crippling tariffs on certain imported goods from Australia.
Wine was one of those newly taxed items, and instantly one of Treasury Wine's biggest markets disappeared into thin air.
Image source: Getty Images
'Successfully repositioned' business
Fast forward two years, and Treasury's management has done its best to pivot away from the world's largest country.
Investment fund WAM Leaders Ltd (ASX: WLE) has high hopes for its holding, according to portfolio manager John Ayoub.
"Under the leadership of Tim Ford… Treasury Wine Estates has successfully repositioned itself away from China," he said in a memo to clients.
"The business is now in a much stronger position than it was prior to the tariffs, allowing the company to shift back to a growth mindset."
To demonstrate, Ayoub referred to how the acquisition of US business Frank Family Vineyards late last year "filled a key gap" in that country.
"This transaction came with both cost synergies as well as revenue cross-sell and distribution synergies, and has created a new growth pillar for the US business."
Defensive in economic downturns
The other tailwind for Treasury Wine is that it's in an industry that should be resilient through imminent consumer belt-tightening from rising interest rates.
"In the current environment, Treasury Wine Estates is set to outperform," said Ayoub.
"Wine consumption has proven defensive in previous economic downturns, the company is well positioned to pass through inflationary pressures and it has well-recognised brands and strong vintages that are in perennial demand."
The company has an impressive array of new labels launching in the coming months.
"In fact, 4 August marked the release of the latest vintage Penfolds from Australia, California and for the first time, France," Ayoub said.
"Later this year, we should also see the release of the inaugural Chinese Penfolds."
Treasury Wine is scheduled to report its financials on Thursday. The stock price is currently pretty much where it started the year.
Shaw and Partners portfolio manager James Gerrish agreed last week that Treasury Wine has a bright future ahead of it.
"The stock is not overly cheap but solid year-on-year growth looks achievable to justify an FY23 PE of 22x," he said.
"We like Treasury Wine Estates, plus it remains a potential takeover target although tight money markets may delay any action out of Europe."
