Summer Series: Treasury Wine Estates Ltd (ASX: TWE)

Bryce Leske: [00:00:57] Welcome to the Equity Mates Summer Series of 2020, brought to you by super hero who were offering five dollar brokerage and zero dollar brokerage on all ETFs over the next 12 episodes, we're going to be diving into some of Australia's largest and most well-known companies as selected by you, the Equity Mates community. We'll be unpacking the company, its industry, its outlook and some of the key financials. And in some instances, we'll also be taking the tough questions straight to the CEO. To do this, as always, I am joined by my equity buddy Ren. How's it going, bro? [00:01:29][32.3]

Alec Renehan: [00:01:29] I'm very good, Bryce. I'm looking forward to talking about this company. It's one that captured the headlines. And it's not all positive for the company, not really in the company's control. But we will get into all of that. We're talking about a company that has been a market darling up until recently, and that is Treasury Wine [00:01:50][20.1]

Bryce Leske: [00:01:50] Estates, Treasury Wine Estates Market darling. Yes. I think it's always been one of those companies that divides opinion pretty strongly. But yeah, you're right. And it's certainly been in the news of late. We are recording this on the 2nd of December. The last sort of week or so has been a pretty tumultuous for Treasury wines, which we will certainly get into in a little bit before we do a massive thank you to Ben from the Equity Mates community, who has helped with the research and analysis for this episode. Just like all other episodes, we're going to cover a summary of the company, talk about covid impacts industry, its outlook, some financials, and then have a crack at the valuation as well. So without further ado, let's get stuck in its ticker is t w e. So if you want to check it out as we speak and go through this episode, Tawa on the ASX Treasury Wine Estates and Australian winemaking and wine distribution company, vertically integrated wine business with three principal activities, obviously growing grapes and sourcing the production of wine and then also wine marketing, sales and distribution, not only within Australia but all over the world. [00:02:59][69.1]

Alec Renehan: [00:02:59] That's it. Now, before we get too deep into the company you used to term, they're vertically integrated. Jonan, just explain what I meant. [00:03:07][7.1]

Bryce Leske: [00:03:07] It's a vertically integrated region is where the business essentially takes positions in different aspects of the supply chain. So in this case, if you think about the wine supply chain, you've got the growing of the grapes, which is one vertical in the sourcing, another vertical is then the production, and then another vertical is the sales and distribution. So some companies obviously stay in one vertical, whereas Treasury wine estates are spread across all three. [00:03:33][26.1]

Alec Renehan: [00:03:34] Basically, Treasury wine estates could be a business that buys grapes from growers, produces wine slaps, said labels on it, and then gives it to sales and distribution partners to do the sales and distribution. But Treasury is vertically integrated. It owns every step in its supply chain. It grows its own grapes, it produces its own wine, and it sells and distributes its own wine. So fully vertically integrated in theory captures at every point in that supply chain, there's value to be captured and vertically integrated. Companies, in theory, capture that value at every step of the way. So before we get into a bit more about Treasury, [00:04:08][34.0]

Bryce Leske: [00:04:08] I'm feeling a quiz or a [00:04:10][1.9]

Alec Renehan: [00:04:10] question that I just whenever I think about Treasury, I always think about. So Treasury owns Penfolds, which is a premium wine brand, I guess, and they produce the Grange, Penfolds, Grange. And I always just think about them as the wine that brought down the government. Barry O'Farrell down Barry O'Farrell, the former New South Wales premier. I do [00:04:30][19.7]

Bryce Leske: [00:04:30] want to give some context, [00:04:31][0.5]

Alec Renehan: [00:04:31] who allegedly received a bottle of Grange, couldn't remember it. And it went to Iraq and he resigned today. Oh, yeah. Yeah. Except for those not in New South Wales is the Independent Commission Against Corruption, the government watchdog. So, yeah, Treasury Wine Estates, the wine that brought down a government, they could use that as a tag line. [00:04:49][18.0]

Bryce Leske: [00:04:49] So Treasury Wine is one of the world's largest wine companies. It produces about one point two per cent of the world's wines, which puts it in as the fourth largest, [00:04:58][8.6]

Alec Renehan: [00:04:59] which instantly just makes me think how fragmented the industry is. Unlike that's not surprising. We sort of know that there's outside millions of winemakers around the world from [00:05:08][9.3]

Bryce Leske: [00:05:08] the final [00:05:09][0.7]

Alec Renehan: [00:05:10] little cellar doors to big producers. Yeah, the fourth largest in the world owns a scratch over one percent global market. Yeah. [00:05:17][7.0]

Bryce Leske: [00:05:17] So it produces both commercial and luxury wines with a portfolio of over 70 well known brands. Ren's already mentioned Penfolds, which is perhaps its most prestigious wine label. It's got Wolf Blass Nineteen Crimes, which is a newer one here in Australia, and then Berenger Vineyards. I'm sure someone will tell me that I've pronounced that wrong. But some of the bigger brands that I'm sure you've all heard of and drunk wines are sold in more than 70 countries across the world. But they do focus on four sort of key regions being Australia and New Zealand, the Americas, Europe and the Middle East and Asia. So really the world. [00:05:52][34.9]

Alec Renehan: [00:05:53] Yeah. Yeah. No, I. I think it's five principal reason [00:05:56][2.7]

Bryce Leske: [00:05:57] for [00:05:57][0.0]

Alec Renehan: [00:05:58] Australia, New Zealand, one, the Americas to Europe, three, the Middle East and Africa for all no sorry, Europe, Middle East and Africa is one region that's a big region. It's its world. And then Asia, the largest region. So it doesn't sell one in Antarctica. No. [00:06:14][16.2]

Bryce Leske: [00:06:15] And for reasons a little bit later that we will dig into. But 45 per cent of total profits come from the Asia division. So if you have been keeping up with the news, you'll understand why that might be a massive issue for Treasury wines and something we'll touch on quite shortly. [00:06:31][16.3]

Alec Renehan: [00:06:32] Just a few more stats. They have twelve thousand six hundred hectares of planted vineyards around the world in some of the world's most sought after winemaking regions. The Barossa. The Hunter Valley. Yeah, McLaren, yes. Then they have 71 vineyards in Australia. Just a random fact, 19 Crimes is partnering with Snoop Dogg to celebrate the release of dogs everywhere. I know menu log every [00:07:00][27.9]

Speaker 1: [00:07:00] look and you look. It's good anyway. [00:07:05][5.1]

Alec Renehan: [00:07:06] Yeah, to celebrate the release of its first Californian red wine and they're reportedly looking at demerging the Penfolds brand. All right. Yeah, but I feel like they that's something that's thrown out. That's not the first time that's been thrown out. [00:07:21][14.6]

Bryce Leske: [00:07:21] And I think they've taken it off the table. [00:07:23][1.5]

Alec Renehan: [00:07:23] OK, yeah. Because of everything. [00:07:25][1.4]

Bryce Leske: [00:07:26] Yeah, I think it was more than rumored. I mean, Andrew Brown came in and spoke to us about how they seemed pretty not convinced, but I guess set on the idea of exploring it. But as I understand it, it's certainly been tabled for for now. I mean, even at the Hearts and Minds conference, someone pitched the stock purely because of its Penfolds division. So watch this space, I guess. But if it does emerge, then, you know, it'll be interesting to see what happens. So Twenty has been obviously a very tough year for Treasury wine. The share price is down about 45 per cent from its high in 2019, not only from covid, but there are a number of other issues. So do you want to crack into those run? [00:08:04][38.4]

Alec Renehan: [00:08:04] Let's start with covid and that volume, the amount of liquid it sold, I guess, and then sales in dollar figures about down one point nine percent at one point seven percent respectively. But the major loss came in the premium category. So I guess luxury sales are the premium sales, the highest price and the highest margin product sales were lower due to some of the sales channels being slowed or being shut down because the covid. But then consumer preferences changed. And as people tighten their belts and stop spending as much on luxuries, consumers who were buying the premium product started buying cheaper product. And so while overall the sales are down one point seven percent because a covered in that luxury category, it's taken a bigger hit. At the same time, the business has tried to pivot, I guess, a little bit. And it's e-commerce sales have actually accelerated in the second half of the year. And they're doing some new and novel things like Wolf plus, one of their brands has partnered with delivery in the UK. So, again, this story of covid is a story of changing customer preferences and changing distribution models in the face of, you know, bricks and mortar retail and sales channels being a little bit slow or shut down. [00:09:19][74.7]

Bryce Leske: [00:09:19] Another major impact facing Treasury. We'll give a bit of context and then maybe we can talk about what has just happened. In August, the Chinese Ministry of Commerce opened an anti-dumping investigation into Australian wine producers. So essentially they were investigating wine producers coming into China and dumping a lot of wine at very low prices. And when we say dumping, that's an economic term to really come in and undercut domestic producers in terms of price. They're not literally just dumping bottles of wine. But yeah, so there was accusations that the Australian wine producers were coming in and undercutting the producers over in China. [00:09:54][35.0]

Alec Renehan: [00:09:55] Well, I think the key thing with dumping is you're selling it below the price that you sell it in your home market. [00:10:00][4.6]

Bryce Leske: [00:10:00] Yeah, yeah, yeah. So the issue with that is that China is a key growth market for Treasury wines. And obviously this presents a major concern for the industry as a whole, but also particularly Treasury wines. It is estimated 85 per cent of profit growth over the next three years for Penfolds would have stemmed from China. You know, the Chinese love to buy these sorts of premium brands. And obviously Penfolds is one of those. However, it has since escalated since then. Last week, there was an announcement from the Chinese government there. And you want to give a bit of info on. [00:10:35][35.4]

Alec Renehan: [00:10:36] Yeah. So after they announced that investigation earlier in the year, they've now, I guess, concluded that investigation. And in the context of the broader trade tensions that were saying play out between China and Australia and also China and the US, China has announced anti-dumping tariffs on. Australian wine producers, those tariffs range from one hundred and seven percent to 12 percent, and for people who have seen that word, tariffs thrown around but don't really understand what it means, think of it like an import tax. So basically, for a Australian bottle of wine that is going to China, the Chinese government will charge one hundred and seven to two hundred and twelve percent tax on that as it enters their country. And that then increases the price for the end customer in China, you know, that amount. So it really is a way for the Chinese government to confront this dumping practice. Now, the important thing to understand here is that the Australian wine industry claim they aren't dumping the Australian government claim that they aren't dumping. It looks as if this is highly politically motivated. There's a bit of a history when it comes to dumping allegations. And it's one of the key levers, I guess, that members of the World Trade Organization can pull and claim against other countries. The US claim that China was dumping steel. Then they put tariffs on Chinese steel. On the back of that, China have thrown a bunch of anti-dumping allegations against Australian exporters, not just wine. But if we talk about wine here, it's going to become a lot more expensive to buy Treasury wines in China. And for Chinese consumers who are comparing Treasury's option to non Australian options, all of a sudden Treasury starts to look a lot less appealing. So Treasury went into a trading halt when the tariffs were announced after its share price had fallen 11 percent. The reason why the market got so worried about this and the reason why everyone's a little bit concerned about Treasury right now is that analysts of Treasury have predicted that this will hit earnings in a big way. They expect in the F 22 financial year it'll be worth about three hundred and twenty five million dollars. So it'll be thrown in five million dollars less profit the Treasury makes, [00:12:56][140.4]

Bryce Leske: [00:12:57] which is significant. [00:12:57][0.3]

Alec Renehan: [00:12:58] Yeah, it is. And the other thing is there's flow on effects as well. So if Treasury lose their ability to sell the volume they're selling in China, then they've got a whole bunch more inventory that they need to try and sell in other places. Potentially that creates a supply and demand mismatch in countries like Australia or other export markets, and they'll try and sell it at a lower price that will hurt their margins. That'll hurt the profit. Analysts are saying that in 23 they hit to Treasury wine estates. Earnings could be as much as three hundred and fifty million. The CEO of Treasury has come out and said that on the back of these tariffs, demand for their wines in China will be extremely limited. So the company is recognizing there is an issue and analysts are saying things like China is now going to be a lost market for Treasury and future profits are just going to vanish. So not ideal [00:13:48][50.2]

Bryce Leske: [00:13:49] what I do know. No, it's one of those stocks at the moment that I'm sure a lot of people are saying, you know, surely it can't go much lower. You know, this is a good time to buy. But with all of these politically sort of motivated, I guess, trade wars and tensions and unknown outcomes when it comes to regulation and stuff, it's very much, I would say, a sit and wait and sort of sort of see how this all plays out. Yeah. Yeah. To add to all of that rain for 2020, there is a USA supply glut as well going on for Treasury wine. So back in January, there were some pretty significant profit downgrades in the US announced over the oversupply of wine in the region. The stock price fell about 26 per cent. The trade war between the US and China is impacting this. And it has meant that wine that was going to be sold in Asia has actually ended up staying in the US. And because of that, obviously, supply has increased. And I guess there's just too much to service the demand. On top of all of that, the US themselves had an epic, I guess, season on the vines and in twenty nineteen, twenty nineteen. And that resulted in probably more production than they were anticipating, again, adding to more supply. So you can kind of see how with a business like this, there is a lot to consider, a lot of moving parts. And I guess when you're thinking about investing, you need to have your finger on the pulse right across the vertically integrated businesses to to really understand what is the impact of all of this. [00:15:24][94.6]

Alec Renehan: [00:15:24] Yeah, yeah. We started this whole conversation by saying Treasury is, you know what, a one point two percent of the global wine market. And, you know, they sell their wines in over 70 countries. And so just on those two data points alone, you would say that a disruption in any one country, you know, could be substituted to other countries. And, you know, that's such a small part of the overall market that they could just reallocate resources and could be okay. The importance of China to a lot of these Australian exporters, that it's such a big. Out of their market and more importantly, it's such a big part of their future growth plans that even though they're not purely single point sensitive, they can sell to other customers. There's a really heavy reliance on China. And given the geopolitical tensions, Treasury, one of those companies that are facing the brunt of it. Yeah, it's not just wine, I think, like things like Australian barley coal, was it? Oh, yeah. A few others have been wrapped up in this trade war as well. So we'll see how it plays out. It doesn't look like it's going to escalate at any time soon. So for Treasury, you know, it's not the end of the business, but it is going to force a pretty hard rethink about their future plans. [00:16:36][72.0]

Bryce Leske: [00:16:37] So before we take a brief look at the industry and its major competitors, we're just going to have a quick word from our sponsors. OK, so we've certainly understood the impact not only of covid, but some of the major, I guess, issues going on for 2020 with Tawa, what is going on, I guess more broadly in the industry and from a competitor standpoint, big industry, the wine industry, [00:16:59][22.1]

Alec Renehan: [00:17:00] big industry, global wine market is or was valued at about three hundred and fifty dollars billion in twenty eighteen. That's expected to grow to about just a scratch under four hundred and fifty billion US dollars in twenty twenty seven. So it's an industry that's big, it's an industry that's growing. You're definitely doing your part with your two bottles of wine and not to two bottles of Penfold Grange and I must be not [00:17:27][27.2]

Bryce Leske: [00:17:28] 20 year old vintage. [00:17:29][1.5]

Alec Renehan: [00:17:30] Yeah, yeah, yeah. In that overall wine market, the Asia Pacific is the leader in sort of demand for wine and China is the leader within the Asia Pacific region. China is growing. It's expected to grow at about three to four per cent a year over the next four or five years. So it's not, you know, incredible growth story, but four per cent a year of an incredibly high base and an incredibly large number of people. It's still meaningful growth. [00:17:58][28.3]

Bryce Leske: [00:17:59] I assume those numbers, though, were pre announcement of tariff. [00:18:02][3.1]

Alec Renehan: [00:18:02] Well, it's an interesting question. Like Chinese demand is still going to be there. There will still be other wine suppliers, both domestic and nontariff international players that will be selling to Chinese consumers. I mean, Australian wine is good, but I don't think it will dull demand for wine. Generally, what do you reckon the second biggest consumer of wine in the Asia-Pacific region per capita is? [00:18:28][25.3]

Bryce Leske: [00:18:28] Would you go Hong Kong? [00:18:29][0.8]

Alec Renehan: [00:18:30] You might, but that would be wrong to. No, it's Australia. Oh, yeah, Australia, then Japan. The top three. China, Australia, Japan. In terms of fastest growing India is actually the fastest growing. It's growing at about seven percent a year. [00:18:45][15.8]

Bryce Leske: [00:18:46] That middle class really coming up. [00:18:48][1.4]

Alec Renehan: [00:18:48] Yeah. In terms of globally, the biggest consumer of wine, not per capita, but just in terms of volume is the US. The US obviously has some big domestic wine makers, but Australia does and Treasury do export wine over there. And I think really the long and the short of this whole explanation is there's a lot of countries in the world, most of them consume wine. Most of them are consuming more wine than they did a year ago and will continue to consume more wine. And for Treasury, their challenges to navigate these geopolitical and supply and demand issues and just to continue trying to capture more market share. So there's a number of competitors. I mean, I don't think we really need to list them all. You can go to the local Bordeleau and have a look. But yeah, I think really, when you're thinking about competitors, probably the main way to think about it is that every country has their own domestic winemakers that service the domestic market. And then there are a bunch of big international players that are both trying to service their domestic market, but are also trying to export all playing, you know, with different, I guess, types of grapes, different types of wine, different price points. And Treasury tries to sort of play up and down that spectrum of different price points and different types. [00:20:04][75.8]

Bryce Leske: [00:20:05] So you've mentioned market share there and one point two percent of the world's wine and 40 per cent of Australia's wine export to China, which makes up a pretty significant dollar figure. So let's turn to the moat and try and I guess work through if there is one or not. You could argue on one hand that because it is vertically integrated from growing the grapes through to distributing the wine, it does offer some sort of protection against its competitors. And, you know, it's got a lot of brands in there that are strong and well known around the world. So it certainly has a stable of some pretty good ones that get it. A lot of demand. On the other hand, though, wine is one of those, I guess, products, especially here in Australia, that we're not actually tied necessarily to one brand research shows. And, you know, this is through working in retail, that wine is one of those products that is easily switched on almost every shopping trip. You can't just go in and buy if the label looks good or if the price is there. You're not necessarily tied to a brand like you are Apple. So that is, I guess, an issue when it comes to a product like one. Well, I'm [00:21:12][67.8]

Alec Renehan: [00:21:13] not going to let you sit on the fence there and tell me you could argue or you could argue the other way. Do you think Treasury has a moat? [00:21:19][6.0]

Bryce Leske: [00:21:19] I think it's got a scale moat. But at the end of the day, if I base it on how I buy wines, I don't think so. [00:21:25][5.7]

Alec Renehan: [00:21:26] Yeah, I'm pretty adamantly don't think it has a moat because I don't think scale in and of itself is a scale is a moat. If it offers you pricing power or it offers you some other advantage [00:21:37][11.0]

Bryce Leske: [00:21:38] because of that, there is certainly the ability for Treasury want to have pricing power because it owns. A full supply chain so it could, you know, have more sway when it comes to stocking in the Dan Murphy's and the liquor lands of the world, but at the end of the day, it's not as strong and as like Ippei, for example, or some crazy technology that can. [00:21:57][19.0]

Alec Renehan: [00:21:57] And I don't think it's it's not like Treasury is a lower cost producer than any of its other competitors. And I mean, we haven't even got to the whole challenge when it comes to trying to stock in Dan Murphy's and that vicious retailer that is Woolworths doing sixty thousand private label wines and making it harder for anyone else to capture market share. It's not a commodity business like Penfold's obviously has a brand, and that is somewhat of a moat. But I think Treasury overall, because there are so many players, is basically commodities. Yeah. And really, let's be honest, who doesn't choose wine just based on the label? Yeah, exactly. [00:22:32][35.4]

Speaker 1: [00:22:33] Exactly. [00:22:33][0.0]

Bryce Leske: [00:22:34] So let's take a look at the future. I mean, it's pretty obvious that they're facing into a lot of headwinds, so we probably don't need to go into them again. But we did mention that the demerger of Penfold's, which might be on the cards again, but obviously the biggest thing facing Treasury at the moment is the impact of the Chinese tariffs and the oversupply going over in the states as well. So the CEO has come out and said that it's not as big an issue as people think, but time will only tell, I guess, [00:23:00][26.4]

Alec Renehan: [00:23:01] if we sort of move away from the things that Treasury don't have a lot of control over. And we talk about what their strategy is and what their future plans are, they're really trying to focus on premium ization and the company's moving towards the more profitable end of the scale. And that, you know, they're talking about things like optimizing their route to market process and stuff like that, which is, I guess, all about just controlling costs. And they're really trying to find those pockets of growth around the world, especially in the luxury sector. So China was and hopefully in the future will be a big one. The US, they're really looking to expand their market share in the premium market over there. And I imagine, as you know, more and more countries, you know, continue to increase their demand for wine and that demand in the premium sector improves. Treasury will want to play there. [00:23:53][52.0]

Bryce Leske: [00:23:54] So right now, it's that time of the deep dove where we talk on financials. [00:23:58][4.6]

Alec Renehan: [00:23:59] Let's do it. To put it in context for people, FII 20 numbers, they did two point six dollars billion in sales and about 260 million dollars in profit off the back of that. That was actually down from the year before, two point eight, two point nine and about four hundred and twenty million dollars in profit. So not a great F twenty. But if you zoom out a little bit and you look over the last three or five years, they have been growing. So over the last five years, they've averaged growth in their sales at about seven and a half percent a year. They've average growth in their earnings per share, actually a lot higher than that at about 25, 26 percent. So it sort of feels like they had some strong growth, especially in their earnings or their profit, up to twenty nineteen. And then things fell back a bit in 2020. And with all of this kind of stuff happening, it feels like twenty, twenty one is going to be a difficult year for them as well. [00:24:55][55.4]

Bryce Leske: [00:24:56] Nisrine So anything else in the financials worth mentioning before we turn our attention to a valuation? [00:25:01][5.7]

Alec Renehan: [00:25:02] I think one thing to look at is the amount of debt that they have has increased a fair bit over the last few years. So in 2017 they had about six hundred million dollars in debt that went to 80 million and then to one point one billion and is now almost two billion, one point nine billion. So I'm sure that's being used to invest in a bunch of areas of their business, expanding internationally, investing in more vineyards and stuff like that. But that debt number is an interesting one and one to keep in mind. But yeah, really, I think the financials of Treasury, a story of some strong growth up until 2019 and then. Yeah, some uncertainty and then. Oh, yeah, if you're going to invest in Treasury or you are a Treasury investor, you probably will. You definitely need to then take the next step and say, let's look at the different segments of the market, because really that that overall number is obviously a meaningful number. But really what you want to look at is how the different regions are performing. And so you can look at how the Americas are performing, how Asia's performing, how Australia is performing, because, you know, your investment thesis is really going to be around their ability to execute on their plan to expand in certain regions. And I think, you know, some of their less important markets, like, you know, the Middle East or other markets. So they're not really talking about is much less important than really the China numbers and the American numbers. [00:26:23][80.9]

Bryce Leske: [00:26:25] So it's currently trading at eight point sixty five. And if we turn our attention to a valuation and look at where that puts it relative to some of its competitors and also the industry, from a price to earnings perspective, it's got a P of 23 at the moment, which does make it look somewhat cheap. Against some of the competitors, Constellation brands, Diego, Diageo, whatever, however you want to pronounce it. Australian vintage, you know, they're all sort of trading in the 38 to 49 range. But that's obviously because the price of its share has considerably dropped since the announcement of the tariffs. The global beverage industry price to earnings is 25. So wildly in line with that? [00:27:08][43.5]

Alec Renehan: [00:27:09] Yeah, I think the most important thing when you're looking at price to earnings ratio for a company like Treasury, well, really for any company, but for a company where there's uncertainty around this year's numbers, is that price to earnings? Is it based on a on the last reported earnings number? So you'll say TTM a lot of the time trailing 12 months. And it means that the price is obviously updated every day. The market's open and it's based on the current price, but the earnings number is based on the last reported earnings. So for Treasury right now, their price to earnings is what? Twenty three and a bit, twenty three point eight. But that's based on the last reported earnings. If the earnings are going to fall further, you would expect that price to earnings to go down. But then when they report their next set of earnings and they people update that ratio, the number will go back up so often when companies are in a bit of trouble and they're talking about, you know, their profit number falling, their price to earnings will look really cheap. But it's a bit of a value trap because next report, you might find that the market was actually pretty close to what the earnings number was going to be. And, you know, analysts are trying to forecast what it's going to look like. And it may not actually be as cheap as you think when the next earnings numbers released. So a really important one to keep in mind whenever you look at price to earnings is the price is constantly updated, but earnings are updated less frequently. [00:28:35][86.2]

Bryce Leske: [00:28:36] Yeah. Do you have a view on a DCF run? [00:28:38][2.6]

Alec Renehan: [00:28:39] We can do it. We can do it for the exercise of doing it for us investors of our level. Discounted cash flows are useful when a company has not as many headwinds, has a relatively clear growth plan and as relatively stable or predictable growth. Treasury is a company where its growth is so dependent on factors outside of its control and unpredictable factors like the geopolitical tensions between Australia and China and how those two sides decide to escalate or deescalate this conflict or this tension. So I think for our purposes, let's do a discounted cash flow for the purposes of doing it with the caveat that whatever growth rate we put in there is highly likely to be wrong. And potentially the growth rate you need to put in there is no growth at all. So let's take the average. Over the last five years, the earnings per share grew at twenty seven and a half percent. So if we say over the next five years, it can continue to do that, I would say that is probably the most bullish case you would make and you probably wouldn't make it with a discount rate of 10 percent after that five years of growth. You just say that growth will continue at inflation. You get a price of eleven point forty. So not bad at all. But that's a pretty bullish case. If you change that growth number and you just say it's only going to grow at inflation, will grow at three percent, you get a no more in the six point fifty range. So I think that's probably a fair range where it's trading now. It's probably a fair value given the uncertainty. But the problem for me is that the downside risk is so unknown and so big. And, you know, you could very easily say that growth rate actually going negative and then you can still do a discounted cash flow. Like if I say over the next five years, profit will fall at 10 percent a year, and then after that it will grow at inflation. You still get a scratch over five bucks. It's not a worthless company. It's a profitable company that's a big player in its market. And it still obviously has value. But yeah, for me, the risk reward and the uncertainty at this point is a confusing one in saying that it was pitched at the Hearts and Minds conference. So there are stock pickers who are smarter than us who are still bullish on this stock. And so, I mean, for the sake of the Australian wine industry, I hope they're right and yeah, I'm wrong. [00:30:57][137.9]

Bryce Leske: [00:30:57] Bullish pre tariffs. But you would have expected that they had factored something like that happening. [00:31:02][4.8]

Alec Renehan: [00:31:03] There's a case that maybe 200 percent tariff don't demand for Australian wine and potentially premium category of the Chinese market is willing to pay three times as much for Australian wine. I mean, [00:31:15][12.4]

Bryce Leske: [00:31:16] it's that would really put a bee in the bonnet of the Chinese [00:31:18][2.2]

Alec Renehan: [00:31:18] government. Well, I mean, that's the thing. Like they could just increase the tariffs. Nice. [00:31:23][4.4]

Bryce Leske: [00:31:23] Well, that brings us to the end of Treasury Wine Estates. Again, thank you to Ben, who really helped out with the research and analysis for that one. And also a massive thank you to the sponsors of the Equity Mates summer series 2020 Being Super Hero, the newest and cheapest broker in town at the moment, offering five dollar brokerage flat fee on. Your investments and also zero dollar brokerage on ETF, so head to super hero Dotcom today, you to check that out. If you do want to buy Treasury Wine Estates or any of the other stocks that we have spoken about, five dollar flat fated to get it done is a pretty good deal. And they've got an amazing tech driven platform. So head over there and figure it out and get among it. Ren, that's it. And we'll chat next week. [00:32:07][43.4]

Alec Renehan: [00:32:07] Sounds good. [00:32:07][0.0]

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