Treasury Wines reported FY24 EBITS of $658 million with organic growth of only 4% adjusted for acquisitions and currency. The result showed the importance of the DAOU acquisition to earnings and its increasing focus on the luxury wine segment. Earnings growth in FY25e will half come from the growth of DAOU and a further quarter from Penfolds price rises. The underlying business is likely to have limited growth outside these factors given pressure on wine demand under $15 per bottle.

Treasury’s site trip and our meetings in Paso Robles have highlighted the advantage Treasury has in this fast growing wine region. Treasury’s existing facilities combined with extra luxury wine supply at DAOU provides an underpinning for sales and EBITS growth in the Americas. The distinct advantage at Paso is its far lower cost of production. We expect the company to deliver on synergies and double-digit revenue growth from its luxury portfolio and investor confidence in the DAOU acquisition will grow following the trip.

Treasury Wines reported earnings down 6% in 1H24. While a weak result, conditions are likely to be much stronger next half. We expect organic EBITS growth of 9% in FY24e and 5% in FY25e. The upside from China tariff removal and contribution from DAOU are the key catalysts for the business. If wine tariffs in China are removed in late March, there could be a 4%-10% EBITS uplift as the company as the company sells more mid-tier Penfolds volumes and there is a global re-pricing of the Bin range to 2H24.