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 an EBITS decline of 7% for 1H22. This fall in earnings was largely expected given brand divestments and the loss of earnings in China. The good news for the company is that it should see earnings growth from here. Higher margin channels should recover, grape prices are likely to fall and the acquisition of Frank Family Vineyards will contribute to earnings. The report includes a discussion about the company’s margin targets, inventory position and cost of grapes.

The US wine grape crush report for 2021 shows a bigger vintage with higher grape prices. Pricing has recovered to be above 2019 levels after a depressed period in 2020. We should receive information about the Australian 2022 vintage in the next month or so, with another big harvest likely and a downside skew to grape prices. We see lower grape prices in Australia as a net benefit to Treasury given Australia would be two-thirds of its production and COGS could fall.