Australia | Oct 21 2021
This story features ENDEAVOUR GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: EDV
As lockdowns in NSW/Victoria ease, alcohol consumption in hotels returns to the fore for Endeavour Group
-Retail and online alcohol sales remain buoyant
-Yet may be eclipsed by a return to social gathering in pubs
-Endeavour Group outlook dependent on the consumer transition over festive season
By Eva Brocklehurst
One opportunity diminishes and another emerges for Endeavour Group ((EDV)), as the focus returns to its hotel business now lockdowns are easing. The bumper retail sales of alcohol, spurred by at-home consumption, are likely to step back a notch. Instead, socialising on licensed premises should feature, particularly over the festive season.
Still, some travel restrictions are likely to continue, supporting retail expenditure. Credit Suisse suspects costs will be higher than normal for hotel management amid the quarantining of staff and the checking of vaccine status of patrons.
The broker increases retail liquor sales revenue estimates by 3% for the second quarter while reducing hotels revenue forecasts by -5%. Comparatively, Endeavour Group's retail sales declined -20 basis points compared with the industry at -80 basis points in the first quarter.
On a two-year basis the company's retail sales are up 21% compared with the industry at 32%. Credit Suisse concludes the company's market share is broadly neutral and independents have held the share gained in 2021.
Pressures on the supply chain and the availability of labour are also affecting the company's network, Morgans notes, with access to imported drinks in particular being limited.
In contrast, online sales have been buoyed by the shift to at-home consumption with penetration at record levels. Macquarie points out, while a portion of this growth can be attributable to the restriction of on-premises drinking, the fact remains that online penetration also grew in states where lockdowns were not a hindrance.
State governments enforced the closure of venues, including 40% of the company's venues and nearly 60% of gaming machines in Victoria/NSW. It appears to the broker, in those regions where there has been minimal restrictions on gathering, hotels are either in line or slightly ahead of pre-pandemic levels.
As restrictions are somewhat more onerous in Victoria the company has signalled it will be probably not be profitable to re-open all hotels under current regulations. Moreover, Morgans warns that while venues in NSW have experienced a strong rebound in gambling, bar & food activity following the recent relaxation of rules, it remains early days.
Refurbishments should also support an expected rebound in on-premises trading in the second quarter and Macquarie suggests retail expenditure, which was heightened during the lockdowns, may diminish over the festive season as socialising increasingly returns to licensed premises.
The company continues to expand the digital order & pay technology across its network and there is a potential for growth if further investment can be made in hotels, the broker adds. Endeavour Group has acquired two more hotels, the Terry Hills Tavern and the Manly Hotel, although Credit Suisse suspects high expectations from sellers are likely to limit more acquisitions.
As a stock pick, Macquarie believes supermarkets are superior businesses to alcohol retailers and maintains a preference for Coles ((COL)) while, despite the potential moderation in at-home consumption, Morgans believes the stock provides good leverage to the re-opening of the NSW/Victorian economies.
Like-for-like sales fell -1.2% in the first quarter and the broker believes this was a strong result given the cycling of 20.1% growth in the prior comparable period. Morgans acknowledges forecasting is made more difficult by the fact demand for the company's services will heavily depend on consumer spending decisions in the transition to a more environment.
FNArena's database has two Hold and one Sell (Credit Suisse). The consensus target is $6.78, signalling 0.6% upside to the last share price.
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