Shares in Value Logo
Product Review Img Vertical

Date : 21/02/2022

Endeavour Group (ASX : EDV)

ASX :

EDV

Market Cap : $11.66 Billion

Dividend Per Share : $0.195

Dividend Yield : 2.72 %

Buy

52 Week Range : $5.77 - $7.50

Share Price : $7.18

Non-cyclical business that is projected to keep its growth going. We retain a "Buy"

Company Analysis

Endeavour Group (ASX: EDV) is the retail drinks business and used to be the most profitable business segment in the Woolworths Group. Given the drawbacks and growth bottlenecks present in the groceries and everyday needs business, Woolies decided to restructure by combining Endeavor Group and their Hotel business into a single entity – ensuring that the growing Endeavour Group can continue to accelerate its own growth aspirations and not be held back by the structural challenges of the groceries business.

Despite a challenging half-year period given the impacts of the pandemic, Endeavour has delivered a fantastic result in its first 6 months of trading as an independent business. Shares are up over 8% at the time of writing this.

Endeavour delivered sales of $6.3 billion in the first half of FY22, in line with last year’s numbers. EBIT increased 3.2% to $556 million compared to H1 F21, driven by an improvement in gross profit margin within the Retail segment. This growth is after accounting for a $24 million decrease in Other EBIT, driven by costs associated with operating as an independently listed business, which was not incurred in H1 F21. Finance costs of $105 million in the half were $31 million lower than last year due to a favourable change to the interest rate when funding was converted to external debt. The Group’s profit for the half-year after income tax was $311 million – up 15.6%.

Endeavour also announced a healthy dividend today. The Board resolved to pay an interim dividend of $0.125 per share, representing a payout ratio of 71.9%. This equates to an expected total payment of $224 million to the Group’s shareholders.

Dan Murphy’s Soars

The Retail business delivered sales of $5.7 billion in the first half of F22, slightly behind the exceptionally strong sales in H1 F21 and up 18.4% on a two-year basis. EBIT increased 10.0% to $461 million, and the EBIT to sales ratio improved 79 bps to 8.1%.

The ongoing investments to improve in-store and online customer experience strengthened customer metrics. This is particularly pleasing in light of supply chain challenges and team availability impacts experienced across the peak Christmas trading period. The My Dan’s membership program continues to grow in popularity, with members reaching 6.2 million at the end of December, increasing 21.6% from the prior year.

The retail market remained elevated due to extensive on-premise closures in the first four months of the financial year. Following the easing of COVID restrictions during October, Retail sales started to normalise as customers returned to on-premise venues.

Online sales grew 24.8% to $603 million, representing a penetration of 10.7%, 217 bps higher than H1 F21, driven by sustained investment in our digital offering and focus on delivering exceptional online customer experience and convenience.

The gross profit margin was 23.7%, a 141-bps increase on H1 F21, driven by generally lower promotional activity in the market, premiumisation trends and mix improvements through higher-margin new products, and growing demand for Pinnacle Drinks brands. Endeavour said it continued to see consumers move to craft offerings, more premium wines and spirits, with gin and seltzers particularly strong. Beer and cider were the only major categories in decline compared to last year.

The Retail store network increased by net 24 stores during the half, and EDV renewed 49 stores. Six Dan
Murphy’s stores were opened, and four stores were renewed. Following a successful pilot, EDV has commenced Dan Murphy’s 2.0 format roll out with five stores now live. There was a total of 257
Dan Murphy’s stores at the end of the half. Further BWS network expansion also took place in H1 F22 with
the opening of 24 new stores, and the renewal of 45 stores, bringing the total number of stores to 1,410.

Hotels hit by Omicron

While Covid19 impacted the hotels business, the segment sales still grew by 1.9% to $680 million on a one-year basis and were still well down on a two-year basis (pre-COVID) by 26.0% due to lockdowns and trading restrictions. There were only 30% of total trading days where all of EDV’s hotels were open in this half-year.

When hotels were permitted to open, they were subject to ongoing trading restrictions ranging from outdoor only trading to seated service only and various other capacity constraints that differed by state and region. The most significant closures were in New South Wales and Victoria, which extended for the full first quarter.

Despite the significant volatility in the operating environment, gross profit margin remained stable at 84.4% compared to 84.8% in the prior comparative period. Hotels EBIT of $121 million was in line with the same period last year.

Terry Hills Tavern in Sydney, The Manly Hotel in Brisbane, and the Commercial Hotel at Charters Towers in QLD was acquired during the half. The total Hotels portfolio consisted of 342 hotels (including five managed clubs) at the end of the period.

Outlook

The Omicron outbreak has caused increased uncertainty and brought new challenges to both Retail and Hotels. EDV’s sales across the first six weeks of the second half are tracking slightly behind F21, with Retail -2% and Hotels at -2.9%.

However, things are starting to ease in February as the effects of the pandemic are subsiding. Today, Australia has also opened its borders to international tourists, and we expect Endeavour to have a very positive rest of the year. The difficult operating environment is now easing, and Endeavour is positioned to grow.

The Retail business is non-cyclical, and it has shown extremely high resilience throughout the pandemic. The easing of the effects will only act as a boost for the segment.

Our detailed earlier report can be accessed by clicking here.

Recommendation

Endeavour manages its businesses extremely well. Dan Murphy’s and BWS continue to dish out high sales numbers, pandemic or not. The Hotels business has a positive outlook as Covid19 subsides and Australia has opened its borders. Endeavour continues to add new stores and hotels and push for growth. Its business is non-cyclical, and we think it is a fantastic company to invest in. Managing inflation for Endeavour should also be straightforward since their businesses are resilient, and the company can pass on the added cost to the customer without any material impact on sales volumes. We retain our “Buy” recommendation on Endeavour Group.

 

Scroll to Top

Login

By submitting this form, I agree to the TERMS AND CONDITIONS and PRIVATE POLICY