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Valuation, not speculation

1905_TWE

Valuation, not speculation

In the space of a fortnight, Treasury Wine Estate (ASX: TWE) has dismissed reports that it has been approached by two separate bidders for the company’s US assets. Speculation of this sort should never form the basis of your investment decision making.

The share price responded favourably to this media speculation. Takeover offers are typically made at a premium to the current share price, so many speculators may have recently purchased shares in the hope these rumours may turn into a formal offer.

Actions of this kind are not investing. When people part with capital in the hope of a higher share price, and do not consider the company’s underlying fundamentals, then they are simply gambling.

Treasury Wine Estate is experiencing issues in a number of areas – government measures in China are impacting consumer demand for premium wine, pricing decisions in Australia have resulted in higher than expected volume declines, and excess inventory levels in the United States has resulted in $150 million of obsolete wine.

This will be a painful recovery for the group. While its competitors may be opportunistically running the ruler over the company, this should not influence your own assessment of the company’s underlying value. Please assess the downside if, in response to this media speculation, you purchase the stock and a bid does not eventuate. Would you remain a holder?

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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