Endeavour Group Ltd EDV makes Morningstar equity analysts’ April Best Ideas. The five-star stock (at 3 April 2025) is currently at a 36% discount to its $6.10 Fair Value Estimate.

Endeavour is Australia’s pre-eminent omnichannel liquor retailer, operating the largest network of brick-and-mortar stores throughout the country, with more than 1,600 liquor outlets across the well-known Dan Murphy’s and BWS brands. Endeavour also has substantial interests in hotels and electronic gaming machines, operating more than 12,000 gaming machines across its portfolio of more than 300 hotels, pubs, and clubs. Endeavour is one of Australia’s leading employers, with staff of some 30,000 throughout Australia.

Our analysts believe that the market underappreciates Endeavour’s defensive long-term earnings outlook. Consumers are trading down to cheaper options and buying in bulk for at-home liquor consumption.

Johannes Faul, CFA, Director of Equity Research believes current liquor retailing performance reflects a cyclically weak trading environment due to elevated cost-of-living pressures. However, he expects liquor sales momentum to improve and sales growth to reach durable levels in the midsingle digits from fiscal 2026. Longer term, he thinks liquor demand is defensive, underpinned by inflation and population growth, and a structural trend toward premiumisation. In the smaller hotels segment, earnings are proving resilient despite recently introduced gaming regulations in Victoria.

Endeavour reported soft sales, declining 1% in the first half of fiscal 2025 with at-home liquor consumption subdued. Operating costs are rising, weighing heavily on profit margins.

Why it matters: While we expected a weak first half for the core liquor retailing segment, soft sales momentum is continuing for longer. We reduce our fiscal 2025 group sales estimate by 3% to AUD 12.1 billion, and lower our fiscal 2025 earnings estimate by 9% on decreased liquor retailing earnings.

  • Endeavour is affected by recent strikes at Woolworths’ distribution centers. Although resolved in December, the disruptions extend into the second half. Adjusting for an extra trading week in the prior year, we now expect liquor sales to decline by 1% in fiscal 2025, from a 2% increase prior.
  • In the smaller hotels segment, accounting for 40% of operating profits in the half, gaming revenue is resilient. After new gaming regulations in Victoria initially weighed on Endeavour’s operations, it is regaining market share in the state with the restrictions now mandatory industrywide.

The bottom line: We maintain our $6.10 fair value estimate for wide-moat Endeavour. Our downgraded near-term outlook is immaterial to our intrinsic assessment.

  • We anticipate liquor sales growth recovers in fiscal 2026, as household budgets benefit from lower mortgage rates. We also expect operating cost pressures to abate, with inflation rates stabilizing in the low-single digits, with liquor EBIT margins to revert to historical levels of 5.7% by fiscal 2027.
  • Our fair value estimate implies a P/E ratio of 24 times fiscal 2025 earnings of AUD 0.25 per share. We think this appropriately accounts for the group’s growth outlook—a five-year earnings per share compound annual growth rate of 4%—and the relative defensiveness of its earnings.

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