Our 12-month target price for Treasury Wine of A$5.50 per share is derived by rolling forward our blended valuation at the cost of equity, less the next 12 months of dividends to be paid. Our valuation is based on a blended average of our DCF, sum-of-the-parts and PE relative. 

The components of our valuation are: 
• DCF valuation of A$8.01 with a WACC of 10.4% and real terminal growth of 2.75%. 
• SOTP of A$3.83 with an EV/EBITDA of 5.1x for FY26e EBITDA. We have compared Treasury with global wine companies. 
• PE relative of A$4.21, as we apply a 65% discount to ASX 100 given increasing structural headwinds.

The upside risks to achieving our forecasts and target price are:
• Lower AUD. The group has a minimal level of natural hedging in place, and therefore is a net beneficiary of a lower AUD/USD exchange rate.
• Improved market share. Enhanced execution, route to market strategies, and portfolio positioning may enable TWE to grow sales at a better-than-expected rate.
• Better underlying margins. Management initiatives including the improvements to customer and sales team incentive structures may accelerate margin expansion given the focus on value rather than volume.
• Value-accretive M&A. Treasury Wine has specifically called out M&A in the US. A suitable acquisition at the right price could be EPS and value accretive. 

The downside risks are:
• Higher AUD. Further strengthening of the AUD poses downside risk to earnings and valuation.
• Retailer consolidation. Increased pricing power on part of retailers would increase pressure on margins.
• Inflationary pressures impacting consumer demand as well as its own cost base.
• Sustained consumer slowdown in Australia and US.
• Longer-term oversupply in both Australian and US wine industries.
• Regulatory change. Major changes to wine taxation or tariffs may materially impact wine demand.

If the impact on the company from any of these factors proves to be less/more negative than we anticipate, the stock could materially outperform/underperform our target price.