Wine exports to mainland China by Australian producers soared 63 per cent in calendar 2017 to a record $848 million, triggering another surge in the share price of Penfolds owner Treasury Wine Estates which reached record highs.
But the three next biggest export destinations for Australia’s 2,000 wine producers of the United States, United Kingdom and Canada, all suffered a small decline in value.
Official figures from industry body Wine Australia released on Tuesday showed total Australian wine exports climbed by 15 per cent in 2017 to reach $2.56 billion by value, and the impressive rise to China augurs well for ASX-listed Treasury, which has been a big driver of the jump through its Penfolds and Wolf Blass brands. China now represents one third of the value of all Australian wine exports.
Treasury Wine shares gained a further 4 per cent on Tuesday, to close at $16.57, after earlier hitting a record high of $16.70. This followed a rise of 2.7 per cent on Monday. The company’s shares hit $16.45 on December 20 and a year ago were sitting at just above $11. Stockbroking house UBS upgraded its forecasts for Treasury on January 22, and now has a 12-month price target of $17.30 on the company. UBS analyst Ben Gilbert has a “buy” rating on the stock and said the Asian growth story was “only just beginning”. He said the scope for more profit upgrades hasn’t been factored into the share price and UBS expects profit margins for 2020-21 for the Asian region to be around 42 per cent, compared with the company’s guidance of between 30 to 35 per cent. Mr Gilbert said China’s population of 1.4 billion and its growing middle class meant the opportunity was vast. Wine consumption in China per capita is just 2.1 litres per capita, compared with 11.8 litres per capita in the United States and 26.8 litres in Australia.
In mid-2014 Treasury was pursued by two separate private equity firms, KKR and TPG, who made buyout overtures and did extensive due diligence inside the company but decided to withdraw after deciding they couldn’t justify paying the $5.20 per share price tag they had originally suggested in indicative offers.
Wine Australia chief executive Andreas Clark said Australian wine had experienced “outstanding growth” to mainland China in the past 10 years, and was poised to accelerate further because of the extra impetus provided by the implementation of the China-Australia Free Trade Agreement in 2015.
He said the rise in China was across all price points, starting with entry level commercial wines right through to the most prestigious fine wines. Penfolds has been re-positioned by Treasury Wines chief executive Mike Clarke as a luxury product in China under a deliberate strategy introduced several years ago which included shifting the release date of its flagship Penfolds Grange to October from the traditional May release.
Australian wine exports to Hong Kong, which are calculated separately by Wine Australia, increased by 7 per cent to $118 million in 2017.
Wolf Blass is an extremely popular wine brand in Hong Kong.
Exports to the United States slipped by 2 per cent to $449 million, while sales to the United Kingdom dropped 2 per cent to $348 million.
Wine Australia’s Mr Clark said while there had been a slight fall in the United States figure, the big plus was that higher-priced wines were on the increase.
He said wines selling for more than $US14 per bottle in the US had delivered an 8 per cent rise in value to $45 million. Sales to Canada were down 3 per cent to $187 million.
The Federal Government has lodged complaints with the World Trade Organisation over what it claims are “protectionist” measures against Australian producers by Canada.
Sales to the United Kingdom have been crimped by a sustained drop in the British pound after the Brexit vote, which makes it hard for Australian wines to compete on the shelves in United Kingdom supermarkets as wine producers battle to preserve profit margins in a highly-competitive sector where discounting is rife.
The 15 per cent overall growth rate in Australian wine exports in 2017 was the highest annual rate since 2004. Shiraz is the No.1 export variety with $601 million in sales across all destinations after enjoying 18 per cent growth.
”Wine exports to China now make up one third of Aust’s $2.56 billion total and Treasury Wines is a big driver”, Financial Review, 2018. [Online]. Available: http://www.afr.com/business/agriculture/wine-exports-to-china-jump-63-per-cent-in-good-sign-for-treasury-wine-20180122-h0m23r. [Accessed: 29- Jan- 2018].