Endeavour Group - An Undervalued Liquor Retail Giant
πππ$Endeavour Group Ltd(EDV.AU)$ shar price tumbled almost 10% yesterday on news that the Victorian Government's announcement that gamblers will be restricted to a AUD 100 limit on poker machines, down from the current limit of AUD 1000. Also all venues with poker machines except for Crown Casino will be required to shut down gaming areas between 4am and 10am.
Endeavour is Australia's largest retail liquor distributor with more than 1600 outlets across Dan Murphy's and BWS. It also owns the largest chain of pubs and hotels under the ALH brand with over 350 venues. Endeavour's sales are almost 3 times larger than its nearest retail competitor Coles. This provides Endeavour with a wide moat over its competitors.
Is time to bargain hunt Endeavour or sell it?
Goldman Sachs is bullish on Endeavour with a Buy rating and Target price of AUD 7.50, an upside potential of 27% over the next 12 months.
Endeavour is a quality stock that ticks all the core fundamentals of profitability, strong balance sheet and an excellent management team.
In its latest Q1 2023 earnings report, Revenue was AUD 3.25 billion, up 2.6% year on year. Net Income was AUD 182 million, up 17%, Net Profit Margin was 5.6%, up 14%.
Endeavour's Retail business represents 87% of the business while its Hotel segment only takes up 13%. So this negative news does not materially impact the profitability of the company.
Endeavour is a spin off from $WOOLWORTHS GROUP LTD(WOW.AU)$ in June 2021 and Woolworths still owns 9% share of Endeavour.
Performance wise Endeavour 's share price is down 9.9% since yesterday and 28% in the past year. To me, Endeavour is undervalued and a great buy. $Endeavour Group Ltd(EDV.AU)$ is a Consumer Defensive stock which is less impervious to economic cycles. The best part of it is collecting dividends every 6 months while waiting for capital growth. The current dividend yield is 5.07%, fully franked.
Negative news does impact the share price of $Endeavour Group Ltd(EDV.AU)$ but if we look at its core fundamentals and wide moat, it represents an excellent value for money. As Warren Buffett likes to say, be Greedy when there is Fear in the market. The stock market is a voting machine in the short run, but in the long run it is a weighing machine.
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