Treasury Wine Estates Ltd (ASX: TWE) shares could be undervalued.
That's the view of analysts at Goldman Sachs, which have been running the rule over the ASX 200 stock's brand portfolio.
That broker highlights that its "NTA [net tangible assets] analysis suggests underlying brand portfolio undervalued."
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What is the broker saying about this ASX 200 stock?
Goldman has been busying calculating the value of the wine giant's brand portfolio following the acquisition of DAOU for $1.7 billion.
It believes that the market is undervaluing its portfolio. It explains:
TWE is trading at last close of A$11.0/sh. Our December 2023 note discusses extensively our channel checks and scenario analysis of recently acquired DAOU. Our current SOTP values DAOU at Enterprise Value of ~A$1.7B, or Equity Value of ~A$1.2B post attributable net debt, vs. acquisition price net of debt at A$1.1B, and implies per share value of ~A$1.50/sh. As such, the current trading price of A$11.0/sh implies that the underlying business ex-DAOU is valued at A$9.50/sh. Against this, we calculate an NTA range (ex DAOU) of A$6.0-A$9.3/sh, with mid-point at A$7.7/sh, primarily reflecting inventory of ~A$5.7/sh and owned vineyard land holdings in ANZ and US of A$1.6/sh.
This implies that the market is valuing the underlying business at ~23% premium to NTA, attributable to a notable portfolio of luxury and premium brands, led by Penfolds. This is below our TP A$12.40/sh implied ~42% premium to NTA for the underlying TWE business. We believe that the next key event to watch will be China's tariff review results, which per the announced duration of the process should be end-March 2024. Despite still challenging demand conditions, our channel checks suggest market share gains can be expected for TWE as smaller traders and brands cycle out of the market.
Double digit returns
In light of the above, Goldman has reiterated its buy rating and $12.40 price target on the ASX 200 stock.
This implies potential upside of almost 13% for investors over the next 12 months.
In addition, Goldman expects a 3.2% dividend yield in FY 2024, boosting the total potential return to approximately 16%.
