Wine firm Treasury shows the value of SIT’s style

THE poster child for the Scottish Investment Trust’s approach is Australia’s Treasury Wine Estates, its largest holding at 4.6 per cent of the fund.

The Melbourne-based wine maker is the biggest contributor to its outperformance and a showcase for the SIT team’s approach.

Treasury recently announced interim 2017 financial results showing pre-tax profits up 58 per cent to AUS$227 million (£140m) for the first half of the year.

Mr McKinnon said the previously hived-off wine arm of Fosters had “disappointed investors multiple times with turnaround stories” over the years and was shunned by the market.

Having met the previous and new management in Edinburgh, and having followed Fosters for years, McKinnon and his team were convinced by their approach that saw the value in the brands (Penfolds, Wolf Blass, Lindemans) and resisted the commoditisation by supermarkets, and repositioned itself at the top of the market.

“I thought the four per cent dividend’s wonderful, and even if this plan doesn’t work, the [cheaper] Aussie dollar will help exports. The plan worked really well, really quickly and they compounded that by making a really good acquisition in Diageo Wine that meant they didn’t have to spend a lot on new bottling facilities.

“But I also knew that wine, being essentially an agricultural product, is a cyclical business and it was definitely in the trough of its cyclicality –also that wine is a growth market, because more people think it has fewer calories [than beer or spirits].”