Interview Synopsis

Treasury Wine Estates – potential penfolds demerger

  • Multi Asset
  • Consumer
  • Global

Treasury Wine Estates (TWE), an Australia-based global wine maker and distributor, has been mulling spinning off its Penfolds Wine business and listing it on the Australian Securities Exchange. Penfolds represents about 10% of TWE’s total volume but 50% of its income. Third Bridge Forum spoke to a former director at Penfolds to discuss the business’ contribution to TWE and the viability of a demerger.

The case for Penfolds-Treasury Wine Estates demerger

TWE is “largely a mainstream to economy wine brand business and, as a consequence, the rest of the portfolio does massive volumes with very little revenue per volume,” the expert said. Penfolds has a diverse offering, including wine that costs AUD 17-18 a bottle all the way up to AUD 1,000. According to the specialist, there are “still significantly under-developed price volume pockets” within Penfolds. However, “what’s strong about the Penfolds brand within the TWE portfolio is its ability to take price accretion, year in, year out, basically”.

The Interview covered why Penfolds’ gross margins are higher than those across the rest of TWE. “It’s a highly efficient raw materials business, for a start,” the specialist said. Second, it can command higher price premiums than other brands in the TWE portfolio.

On the subject of a potential demerger of Penfolds from TWE, the specialist sees “massive upside” for Penfolds if it could grow as a standalone luxury brands business — but the expert doesn’t believe this is possible under the TWE umbrella. In terms of potential dis-synergies from a demerger, Penfolds might be more vulnerable in North America in the short term. Joining an existing luxury business would be Penfolds’ best option, according to the expert. “The value is in really investing in growing this business further, because it really has the potential, but that requires a long-term view,” the specialist said. 

To access all the human insights in Third Bridge Forum’s Treasury Wine Estates – Potential Penfolds Demerger Interview, click here to view the full transcript. 

The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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