Brokers are impressed by
-Investment in new facility to pay off for
-Replanting/rejuvenation underway
-Automation to provide cost efficiencies
-Improvement in margins
Being an equity analyst can often be a difficult and tiresome assignment. Yesterday
But they did come home impressed.
Investment in the
Optimisation
Treasury Wine has also replanted or is rejuvenating 800-900 hectares of vineyards, a process that began in FY21 and represents some 10-12% of planted acreage. Approximately 25% of these vineyards are producing, with the remaining 75% to return to production over the next two years. This will support the company's ambition to increase intake in FY24 and beyond,
While Citi points out replanting/rejuvenating is somewhat business-as-usual for a winemaker, this has been opportunistically accelerated at a time of oversupply and
The recently built dam (one of five) provides a competitive advantage as it increases water security, and future plans to put a lid on the dam shown to analysts from
Automation
The company is also testing robot sprayers which facilitate significant labour efficiencies, Citi notes, as one employee can run five sprayers versus one employee to operate each non-robot sprayer. Each sprayer costs
And the company is trialing vineyard canopies, which cost
The key drivers for return on capital employed (ROCE), in reference to the
Secondly, the winemaking process (including a more versatile approach to grape intake and greater use of technology) is now better able to ensure grapes become the highest luxury grade possible, which helps to increase net sales revenue per case and expand gross margins, and thirdly, greater use of technology (eg automation) and changing processes drive efficiency gains and reduce overall labour costs.
All up, the investments should lift FY24 intake to increase as Penfolds' inventory position is rebalanced and Treasury Wine prepares for potential removal of
As a result of utilisation of the new wine-making facility, the broker expects to see an improvement in the company's luxury inventory positioning, supportive of gross profit margins. The uplift in conversion and reduced grade slippage will underpin this mix-shift to higher quality inventory.
Despite all the excitement, none of the three brokers reporting deigned to change their ratings or targets for the stock.
Bottoms up.
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