Melbourne–headquartered global wine compony Treasury Wine Estates Ltd [ASX:TWE] had shed 6.37% off of its share price this morning, losing $1.03 to trade at $15.14 per share.
TWE has come to prominence over the years, laying claim to some of Australia’s most iconic wine brands, including Penfolds and Wolf Blass. The company sells wine in more than 100 countries around the world.
TWE blasted by US hedge fund, CEO sells shares
The Treasury Wine share price has come under increased downwards pressure since Tuesday after being blasted by a high profile hedge fund manager at a New York investor conference.
Angela Aldrich from Bayberry Capital Partners claimed this week at the Sohn Investment Conference that Treasury shares were overvalued by more than 50%. Ms Aldrich accused the Australian wine company of artificially inflating sales figures.
Specifically, Ms Aldrich and Bayberry Capital suspect TWE of ‘channel stuffing’, a practice of pushing a larger amount of stock through a retailer than can be sold.
Bayberry Capital are shorting Treasury shares, betting the price will fall. While the share price only dipped marginally yesterday, it seems Ms Aldrich’s criticism has had a greater impact on investors today.
The knee-jerk reaction seen today deserves its own criticism. Despite the hedge fund’s claims that TWC’s US market isn’t growing, the company’s brand ‘19 Crimes’ listed as the second biggest selling Premium-Plus imported table wine in the US in 2018.
According to wine industry publication Shaken News Daily, 19 Crimes’ depletion rates in the US have increased by 51% — referring to the rate at which wine leaves the company’s warehouse en route to end users.
Coinciding with the harsh criticism from across the Pacific, Treasury Wine Estates chief executive Mike Clarke has helped trigger a plunge in the group’s share price. Announced this morning, the CEO offloaded almost $7 million in shares last week.
The company said the sale was purely for personal reasons. Mr Clarke continues to hold a significant relevant interest in 1,795,445 company securities, made up of 542,994 ordinary shares of the company and 1,252,451 performance rights in the company.
While it’s unlikely the two incidents are related, the timing is unfortunate for TWE shareholders.
What’s next for Treasury?
Despite the scathing assessment from the US, the criticism seems short sighted, failing to consider Treasury’s broad asset base and the popularity of Australian wines in China and the UK.
TWE reiterated its guidance for growth in earnings of approximately 25% for fiscal 2019, and in the range of approximately 15% to 20% for fiscal 2020.
The rest of 2019 will be interesting for TWE and Australian wine producers. Colliers’ Agribusiness 2019 report predicts that demand could outstrip supply, citing production trends and seasonal challenges.
Australian wine exports increased 5% over the year ending 31 March 2019 to $2.78 billion, with China, the US, and the UK taking out the top three spots in terms of value. The value of Chinese exports increased by 7% to $1.11 billion, while US exports value declined 3% to $424 million.
With the past 10 years seeing a glut of Australian wine producers appear on the market, the report anticipates the years ahead will see smaller production numbers with the intention of removing the glut. Colliers said, ‘This will increase demand for wine grapes and place upward pressure on fruit prices and vineyard values.’
For Money Morning
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