Treasury Wines update on its Penfolds division highlights the confidence the company has in the long-term global demand for its luxury wines. The company has lifted key product prices by 6% and will have more luxury wines to sell by FY26e under Penfolds Bin & Icon labels. The biggest swing factor for long-term earnings growth in this business will be the momentum in the global luxury wine market.

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.

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.