Fund manager says Treasury Wine (ASX:TWE) share price is too cheap

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The embattled Treasury Wine Estates Ltd (ASX: TWE) share price is finding support among some experts as one fund manager called it far too cheap.

The comment came from Tribeca Investment Partners lead portfolio manager Jun Bei Liu, reported the Australian Financial Review.

Shares in the alcoholic beverages group came under pressure recently when China launched an anti-dumping investigation on Aussie wines.

TWE share price supported by asset value

China has been targeting a range of Australian imports into that country as diplomatic relations between the two nations worsened.

But the stock appears cheap given the strong demand for premium wine in China, said Liu at the 2020 Sohn Hearts & Minds Conference.

She explained that the TWE share price valuation can be fully supported by its inventory and property assets.

Too much bad news in the TWE share price

This means even if the Chinese market is totally cut off to the group, the stock shouldn’t need to fall any further.

“We estimate Treasury has $4 billion of premium label wine sitting in the basement and that’s 70 per cent of its market value at the moment,” the AFR quoted her as saying.

“The rest consists pretty much of its premium farmland out of Napa Valley and South Australia.”

Positive outlook for Treasury Wines

A shift in consumer taste also bodes well for the Treasury Wine share price. While Chinese market demand was once dominated by beers and spirits, millennials favour wines and this group accounts for 30% of China’s population.

It is predicted that China will spend US$430 billion ($595 billion) on alcoholic beverages over the next 10 years, with wine the main driver of consumption.

Against this positive backdrop, Liu think the TWE share price should be trading ahead of its tangible asset base.

This broker likes the TWE share price too

She isn’t the first to highlight this abnormally. As I reported last week, Citigroup upgraded the TWE share price to “buy” from “neutral”.

The broker thinks that the Chinese dumping investigation is focusing on lower priced wine when Treasury Wines is more exposed to the premium end of the market.

Even if China finds Australian importers guilty, Treasury Wine should largely escape any punitive action that the Chinese authorities is expected to impose.

In any case, Citi believes that the loss of the Chinese market is already reflected in the TWE share price.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.