Treasury Wine’s recent US investor tour provided a reinforcement of its direction, rather than any change. The company is clearly focused on premium wine growth, with an increased emphasis on new product development and a desire for bolt-on acquisitions. The reality for the company will be very low volume growth and a continued mix shift leading to modest revenue growth. Marketing investment may rise once EBITS margins targets are hit in our view. We expect 16% EBITS growth in FY23e and 11% in FY24e.

We initiate coverage of Treasury Wine Estates. After a tough 18 months, we expect stabilisation in earnings the shift to a “divisional” model that separates Penfolds will put the spotlight on that segment. The loss of earnings from China is painful, but the reallocation to other markets is likely. The company has scaled back its Americas business to focus on premium wines. The simplification of Treasury and focus on its core brands should support both sales and margins.