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Treasury Wine Estates (TWE)
Treasury wine estates (ASX: TWE) is one of the world's largest wine companies. In their aspiration to be the world's most admired wine company, their winemaking and brand marketing are centred around sustainable growth and meeting the evolving interests of their customers. They strive to be known for the unique experiences they create for their customers, suppliers, and partners. Currently, TWE has reached over 70 countries, have 11,300 hectares of vineyards and wine-making facilities and consists of 2,500 dedicated team members, which they claim to be "the heart and soul of the business" (Treasury Wine Estates, 2010) TWE competes in the highly competitive distillers and vintners’ market and operates in the food, beverage, and tobacco industry. Thanks to Australia's ideal winemaking climate, TWE is competing against many big businesses, with some of the biggest competitors including Australian Vintage Ltd (ASX: AVG), Constellation Brands Inc (ASX: STZ) and Pernod Ricard (ASX: RI) (Treasury Wine Estates - Overview, News & Competitors, 2023).
TWE has remained committed to its core qualities, focusing on sustainable shareholder return. Despite facing ongoing pandemic-related restrictions that have affected its global operations, TWE has proven resilience, with its sales and E-commerce channels operating above pre-pandemic levels. Notably, earnings per share increased by 4.1% at the end of the 2022 financial year, and the business
has a projected growth rate of 4.93%. These positive indicators make TWE a low-risk and attractive investment opportunity (TWE Annual Report, 2022
).
Dividend Discount Model Valuation
Equity Cost Of Capital
The capital asset pricing model (CAPM) was utilized to determine the aggregate equity cost of capital, which provides investors with a means of assessing the potential risks and rewards associated with investing in particular stock. To obtain the CAPM, a risk-free rate of 3.85%, a market portfolio returns of 8.5%, and TWE’s beta 5Y of 0.44 was used (Capital IQ, 2023). The resulting CAPM
value was 5.98%. The CAPM model used can be seen below.
CAPM
=
E
[
R
]
=
R
f
+
β ×
(
E
[
R
mkt
]
−
R
f
)
E
[
R
]
=
5.98%
Given that the discount rate derived from the CAPM model is higher than the risk-free rate of 3.85% and lower than the market portfolio return rate of 8.5%, it is suggested that although there is certainly some risk involved with investment, there is potential to earn a return rate higher than the risk-free rate. Moreover, with a discount rate of 5.98%, when compared to other companies in the market, TWE investments are somewhat risk associated but relatively safer.
Growth Rate Estimation
A growth rate estimation was conducted using net income to determine the potential short-term growth rate of TWE. Financial variables such as EBIT and revenue were ignored as EBIT includes tax and interest, and revenue is too easily affected by outside variables, hence would not determine a reasonable estimated growth rate regarding the dividend discount model. To gain a broad perspective of the firm's movement across different periods, six years were analyzed between 2017-
2022.
To estimate the potential growth rates, the percent in which net income increased each year was found. The arithmetic mean was found by averaging these values whilst the geometric mean was determined as seen below.
geometric mean
=
[
(
1
+
G
1
) (
1
+
G
2
)
…
(
1
+
G
n
)
]
1
/
n
−
1
¿
4.93%
The geometric mean of 4.93% was the most reasonable estimate of short-term growth for TWE. The geometric mean was used rather than arithmetic, as the geometric mean considers compounding, and investors believe it to be a more representative measure of return compared to the arithmetic mean. Many qualitative factors may affect the accuracy of the estimated growth rate. Despite the pervasive impact of the pandemic on various industries and businesses, the food, beverage, and tobacco industry – TWE included – exhibited remarkable resilience, maintaining a solid growth rate throughout the pandemic period. However, the 2018 growth rate suggests the pandemic may have constrained its growth potential. TWE's growth rate increased drastically in 2022, suggesting that, for long-term investors, earnings growth is likely to reach pre-pandemic rates (2018) in 8-10 years. In
the interim, TWE stock presents a compelling investment opportunity with growth potential and a dividend yield of 2.27% (Capital IQ, 2023).
TWE growth rate using net income
year 2017
2018
2019
2020
2021
2022
net income 269.1
408.5
245.4
250
263.2
342.3
Growth rate of net income
-
51.80%
-39.93%
1.87%
5.28%
30.05%
1 + g
100%
151.80%
60.07%
101.87%
105.28%
130.05%
Arithmetic Mean
9.82%
Geometric Mean
4.93%
The industry growth rates were determined using net income to analyse further TWE’s growth rate and position within the market. The geometric mean for the industry growth rate was 2.98%, while the compounded annual growth rate over the last 3 years for the sub-industry is 9.4% (Capital IQ, 2023). Compared to the industry growth rate, TWE is operating above the industry average for food, beverage, and tobacco, suggesting that it is expanding faster than its rivals in the industry. Moreover, TWE’s compounded annual growth rate over the last 3 years (11.73%), exceeds the sub-
industry growth rate. TWE is performing well, indicating TWE’s ability to outperform other competitors in this industry niche. Overall, TWE is well-positioned within the industry, and is an attractive investment for investors. Industry growth rate using net income
year 2017
2018
2019
2020
2021
2022
net income 50.60
52.10
43.60
50.00
55.10
58.60
Growth rate of net income
-
2.96%
-16.31%
14.68%
10.20%
6.35%
1 + g
100%
102.96%
83.69%
114.68%
110.20%
106.35%
Arithmetic Mean
3.58%
Geometric Mean
2.98%
DDM Valuation
A DDM valuation was carried out to calculate an estimated intrinsic value of Treasury Wine Estates (TWE), over ten years, from 2017 to 2027. The growth rate from dividends per share from 2017 to 2022 was calculated using exact data. Future expected dividends (2023 to 2027) were determined using the 10.71%, derived from the growth rate calculated between 2021 and 2022 DPS (Capital IQ, 2023). Example 2023 equation seen below.
Estimated DPS
=
Previous year DPS X
(
1
+
estimated growth rate
)
¿
0.31
X
(
1
+
10.71%
)
¿
0.38
Applying this growth rate across the five years allowed for determining the stock's current value each year, which produced an intrinsic value of 2.08. Example calculations seen below.
Determining stocks current value 2025:
Current value
=
DPS
/(
(
discount rate
+
1
)
n
)
¿
0.42
/(
(
5.98%
+
1
)
4
)
¿
0.33
Intrinsic value:
Intrinsic value
=
DPS
(
discount rate
+
1
)
1
+
DPS
(
discount rate
+
1
)
2
+
…
DPS
(
discount rate
+
1
)
n
Intrinsic value
=
0.31
(
5.98%
+
1
)
1
+
0.34
(
5.98%
+
1
)
2
+
…
0.52
(
5.98%
+
1
)
6
¿
2.08
TWE's current share price of 13.68 suggests that the stock is overvalued by 84% in the market, and it is suggested that investors refrain from purchasing TWE stocks.
DDM
Future expected Dividends
year 2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
DPS
0.26
0.32
0.38
0.28
0.28
0.31
0.34
0.38
0.42
0.47
0.52
Growth rate -
23.08%
18.75%
-
26.32%
0.00%
10.71%
10.71
%
10.71
%
10.71
%
10.71
%
10.71%
1 + g
100
%
123.08
%
118.75
%
73.68%
100.00
%
110.71
%
Current value
0.29
0.31
0.32
0.33
0.47
0.36
Terminal
value 51.51
Value Multiples
P/BV
The price-to-book (P/BV) ratio is a key valuation metric often used to assess the investment potential
of a company’s stock by comparing its market price per share with its book value per share. Generally, a P/BV below 1 indicates undervalued stock, meaning it trades for less than the value of its assets, whereas a P/BV above three is seen as overvalued (Bromels. J, 2020). In the case of Treasury Wines Estates, its average P/BV value is 2.47 (Capital IQ, 2023), indicating the current market price of TWE’s stock is 2.47 times the book value of the company’s assets and that TWE’s stock is currently trading at a premium. When compared to its biggest competitors, such as STZ and RI, TWE’s P/BV is lower, suggesting that its stock is not nearly as overvalued as two of its largest competitors. However, when compared to AVG, TWE’s P/BV suggests that it is far from the most undervalued stock in the market, and there are
competitors which would provide a larger margin
of safety for investors.
Arithmetic mean 2.475
5.98%
Arithmetic mean 7.98%
Intrinsic value
2.08
Current price 13.68
difference
84.79%
P/BV values compared amongst competitors
Business
Average P/BV
value between
2022 - 2025
Treasury wine estate (TWE)
2.475
Constellation Brand Inc (STZ)
4.0725
Australian Vintage Ltd (AVG)
0.4
Pernod Ricard (RI)
3.25
Year
2022
2023
2024
2025
closing share price 13.68
13.68
13.68
13.68
book value per shar
5.24
5.43
5.63
5.85
P/BV Value
2.61
2.52
2.43
2.34
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TEV/EBITDA
Total enterprise value/earnings before taxes, depreciation, and amortization (TEV/EBITDA) is a further valuation metric often used in conjunction with other metrics to evaluate a company’s financial standing and value. While incorporating companies assessed worth (EV) and their overall financial performance and profitability (EBITDA) allows investors to compare companies’ worth within the same industry. A lower ratio often suggests the company is undervalued, whilst a higher one indicates the company is overvalued. Typically, a ratio below 10 is ideal; however, it is essential to consider other ratios within the industry before concluding (Maverick. JB, 2022). At an average ratio of 14.335, TWE’s TEV/EBITDA ratio is comparatively low compared to its sub-industry competitors. For instance, RI and STZ have ratios of 22.5 and 16.5, respectively. Whilst TWE’s ratio could be lower to compete with the AVG’s average ratio of 6.77, TWE has been able to generate strong cash flows – with a strong cash conversion rate of 104.3% - in relation to its enterprise value and performs better than some of its competitors (TWE Annual report, 2022). This suggests that TWE can maintain a strong financial position and value despite not having the lowest ratio amongst its biggest competitors.
TEV/Total Revenue
Used in conjunction with previous valuation metrics, TEV/revenue compares a company's enterprise value with its revenue, which is especially useful in the context of acquisitions to determine a fair value for stock (Hargrave. M, 2021). Analysts generally consider a lower TEV/Total revenue more promising as it often suggests an undervalued firm in the industry. TWE's ratio of 4.08 is just below two of its biggest competitors, STZ and RI, which have ratios of 5.5 and 5.3, respectively. Additionally, TWE's ratio is dramatically higher than AVG's, suggesting that TWE's stock and two of its other biggest competitors may be overvalued. Investors may consider a more cautious approach before investing in TWE's stock in light of other competitors delivering much lower ratios.
Year
2022
2023
2024
2025
Last close TEV
11,126.14
11,124.54
11,124.54
11,124.54
Total revenue
2531.8
2621.76
2813.19
2952.5
TEV/revenue value
4.39
4.24
3.95
3.77
Arithmetic mean
4.0875
Year
2022
2023
2024
2025
Last close TEV
11,126.14
11,124.54
11,124.54
11,124.54
EBITDA
647.9
757.91
843.26
904.48
TEV/EBITDA value
17.17
14.68
13.19
12.3
TEV/EBITDA values compared amongst
competitors
Business
Average
TEV/EBITDA
value between
2022 - 2025
Treasury wine estate (TWE)
14.335
Constellation Brand Inc (STZ)
22.5025
Australian Vintage Ltd (AVG)
6.765
Pernod Ricard (RI)
16.505
Arithmetic mean
14.335
TEV/Revenue values compared amongst
competitors Business
Average TEV/
Revenue value
between
2022 - 2025
Treasury wine estate (TWE)
4.0875
Constellation Brand Inc (STZ)
5.5675
Australian Vintage Ltd (AVG)
0.9425
Pernod Ricard (RI)
5.3575
Overall, TWE’s valuation multiples are on par with the industry averages, suggesting that while it may not be the most competitive or financially healthy firm, it still presents a good investment opportunity with relatively stable value multiples.
Comparison of DDM valuation and Value Multiples
The DDM and value multiples approach gave different recommendations for TWE stock. The DDM valuation suggested that TWE's stock is overvalued by 84%. In comparison, the metric value analysis suggested that TWE's valuation multiples are either on par with or below the industry average, implying that TWE is a good investment opportunity as its stock is currently undervalued.
A potential reason that this analysis' yielded different results is that the DDM and value multiples consider separate measures. The DDM is a more specific valuation model considering the company's expected future cash flows and DPS. The value multiples approach takes a more holistic view of the company's financial performance, considering specific variables such as revenue, enterprise value, and EBITDA. It is recommended that the DDM valuation approach be used instead of the value multiples approach. This is because dividends indicate the true value of the firm's stock as they represent cash flows to the shareholder and can provide a reasonable estimate for TWE as it has had consistent and
stable dividend payments for the last five years (Nguyen. J, 2022). Additionally, a reasonable estimate was able to be made on the firm's intrinsic stock value and terminal value using DDM valuation as it lacks the uncertainty often present in measures involving revenue due to revenue easily being affected by external factors. Whilst the value multiples provide helpful analysis of the firm's value, investors believe DDM to be a much more accurate measure as it lacks subjectivity and does not simplify complex information to a single value, like value multiples (Corporate Finance Institute, 2022).
Dividend pay-out ratio – 10% Increase
If TWE’s dividend pay outs per share were to increase by 10%, this would likely, at first glance, make the stock more attractive to income seeking investors. However, it is important to consider how this 10% increase will affect TWE’s ability to retain earnings, which could impact the company’s ability to fund future growth opportunities. It is possible that this increase in dividend payout ratio would come at the expense of reinvestment and long-term growth, and thus would not be sustainable (Hayes. A, 2023). Additionally, the DDM valuation suggested that TWE’s stock was over-valued by 84%. If TWE increased its payout ratio by 10%, the growth rate of DPS would remain constant, however, the intrinsic value would increase from 2.08 to 2.29. Whilst this is an increase in intrinsic value, it still suggests that the stock is over valued by 83% respectively. Thus, it is still recommended that investors refrain from purchasing TWE’s stock.
Reference List Bromels, J. (2020, December 9).
Using the Price-to-Book Ratio to Analyze Stocks
. The Motley Fool. https://www.fool.com/investing/how-to-invest/stocks/price-to-book-
ratio/
Capital IQ. (2023). Australian Vintage Limited (ASX:AVG). S&P Global Market Intelligence, S&P Global Inc. https://www.capitaliq.com/CIQDotNet/company.aspx?
companyId=879165
Capital IQ. (2023). Constellation Brand Inc (ASX:STZ). S&P Global Market Intelligence, S&P Global Inc. https://www.capitaliq.com/CIQDotNet/company.aspx?
companyId=258589&fromSearchProfiles=True
Capital IQ. (2023). Distillers and Vintners (Sector). S&P Global Market Intelligence, S&P Global Inc. https://www.capitaliq.com/CIQDotNet/Lists/KeyStats.aspx?
listObjectId=100886238
Capital IQ. (2023). Pernod Ricard (ASX:AI). S&P Global Market Intelligence, S&P Global Inc. https://www.capitaliq.com/CIQDotNet/company.aspx?companyId=874314
Capital IQ. (2023). Treasury Wine Estates (ASX:TWE). S&P Global Market Intelligence, S&P Global Inc. https://www.capitaliq.com/CIQDotNet/company.aspx?
companyId=128792870
Corporate Finance Institute. (2022, December 11).
How to Choose the Best Stock Valuation Method
. Investopedia. https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-
methods.asp#:~:text=The%20justification%20for%20using%20dividends
Hargrave, M. (2021, February 21).
When You Should Use the EV/R Multiple When Valuing a Company
. Investopedia. https://www.investopedia.com/terms/e/ev-revenue-
multiple.asp#:~:text=The%20enterprise%20value%2Dto%2Drevenue%20(EV%2FR)
Hayes, A. (2023, February 6).
Dividend Payout Ratio Definition, Formula, and Calculation
. Investopedia.
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https://www.investopedia.com/terms/d/dividendpayoutratio.asp#:~:text=If%20the
%20result%20is%20too
Maverick, J. B. (2022, April 10).
What Is Considered a Healthy EV/EBITDA ?
Investopedia. https://www.investopedia.com/ask/answers/072715/what-considered-healthy-
evebitda.asp#:~:text=The%20EV%2FEBITDA%20ratio%20is
Nguyen, J. (2022, February 19).
How to Choose the Best Stock Valuation Method
. Investopedia. https://www.investopedia.com/articles/fundamental-analysis/11/choosing-valuation-
methods.asp#:~:text=The%20justification%20for%20using%20dividends
Treasury Wine Estates. (2010).
About - Treasury Wine Estates
. Tweglobal.com. https://www.tweglobal.com/about
Treasury Wine Estates. (2022, July 18).
TWE 2022Annual Report
. LISTCORP. https://www.listcorp.com/asx/twe/treasury-wine-estates-limited/news/2022-annual-
report-2748939.html
Treasury Wine Estates - Overview, News & Competitors | ZoomInfo.com
. (2023). ZoomInfo. https://www.zoominfo.com/c/treasury-wine-estates/346517805
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Tesla, the world’s largest carmaker (as determined by market capitalization), understands that their primary target market responds well to brands that focus on social responsibility. Tesla’s senior management has been meeting to devise a global marketing campaign centered on social responsibility. To this end, Tesla decided to hire a consultancy to develop a 9-month plan ending December 31, 2022. Management has asked for a presentation for an initial list of items that would be considered valid elements of a social responsibility marketing plan that would accommodate each of the markets that Tesla competes in. Questions: What type of research would the consultancy conduct to understand each of the wide variety of cultures that the brand competes in? Armed with this researched information, how might the consultancy modify its social responsibility campaigns to accommodate some of the major markets?
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11.
Subject :- Accounting
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Marketing:
Wheels, Inc. manufactures bicycles sold through retail bicycle shops in the southeastern United States. The company has two salespeople that do more than just sell the products
dash–
they manage relationships with the bicycle shops to enable them to better meet consumers' needs. The company's sales reps visit the shops several times per year, often for hours at a time. The owner of Wheels is considering expanding to the rest of the country and would like to have distribution through
600
bicycle shops. To do so, however, the company would have to hire more salespeople. Each salesperson earns $40,000 plus 2 percent commission on all sales annually. Another alternative is to use the services of sales agents instead of its own sales force. Sales agents would be paid 5 percent of sales. Determine the number of salespeople Wheels needs if it has
600
bicycle shop accounts that need to be called on
five
times per year. Each sales call lasts approximately
3
hours
and each sales…
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please can you write more on this topic around 2000 words with some references please Rio Tinto's corporate governance, sustainability practices, and CSR activities in paragraph form, covering the critical evaluation required for your assignment:
Rio Tinto, a prominent global mining, and metals corporation operating across continents like Australia, North America, and Africa, has entrenched itself with robust corporate governance practices that underscore transparency, accountability, and ethical conduct. Central to its operational ethos are comprehensive CSR and sustainability policies integral to its overarching strategy. These policies emphasize environmental stewardship, community engagement, and responsible mining practices, aiming not only to comply with regulatory requirements but also to foster long-term sustainability. Rio Tinto's board structure reflects a commitment to diversity, comprising directors with varied expertise and a substantial degree of independence.…
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