Treasury Wine Estates Share Price Plunges as China Sales Rebound

The share price of Treasury Wine Estates Ltd [ASX:TWE] has hit a fresh 52-week low today upon the release of its first quarter trading results.

One of Australia’s premier wine makers has had a nightmare year with sales being obliterated by the pandemic and growing trade tensions with China.

ASX TWE Share Price Chart

Source: Tradingview

Despite the strong economic headwinds for TWE, the company managed a decent dividend of 28 cents per share in FY20, though FY21 could be very different.

At the time of writing, the TWE share price is down 6.92%, trading at $8.07 per share.

Looming trade war casts doubt on Treasury Wine Estates’ rebound

TWE released its Q1 results today and despite a strong lift in sales, trade tensions with China have cast considerable doubt on the company’s outlook.

TWE’s Australian market showed signs of recovery, with sales of wine price at more than $10 a bottle increasing solidly.

The wine maker said its ‘masstige’ portfolio was up 21% for the quarter.

US operations are also on the up, with TWE’s top nine brands up 32% in the first quarter.

Among the top nine, TWE’s 19 Crimes, which has a multi-year partnership with rapper Snoop Dogg, has helped to drive sales among non-traditional wine drinkers.

There was good news for the Asian region too.

Five Aussie Superstars Paying Top Dividends and Set to Thrive in the Post-Pandemic Era. Claim Your Free Report Now.

TWE saw progressive recovery in demand throughout the Asia region in Q1, with depletions up 14%.

But Australia’s relationship with China took another step backwards on Wednesday when a powerful Chinese drinks entity urged the Beijing government to impose tariffs on Australian wine.

An anti-dumping investigation by China’s Ministry of Commerce and the prospect of bans forced on importers has cast doubt on TWE’s China operations.

CEO Tim Ford said of Chinese operations:

In China specifically, we have continued to see strong recovery in consumer demand for our brands. Pleasingly, we also saw strong consumption throughout the Golden Week holiday season and mid-autumn festival in September and into early October, driven by outstanding brand building investment execution from our local team…

Treasury Wine Estates hits pause on Penfolds demerger

The Penfold’s brand is responsible for 50% of TWE’s profits and was set to be demerged from the group as a standalone ASX-listed company.

Mr Ford said work on a potential Penfolds demerger had been paused because of the uncertainty caused by the anti-dumping investigation.

According to TWE, a demerger of Penfolds would allow more long-term value to be created by supercharging the French and US versions of Penfolds, and revving up the traditional Australian luxury range.

But with the China situation becoming increasingly shaky, it is difficult to predict when we could expect to see a rebound in the TWE share price and its dividends.

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Kind regards,

Lachlann Tierney
For The Rum Rebellion

Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 

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