Back to normal
1H23 RESULT
Need To Know
- Hotel earnings more than double on pcp, margins up to 24%. Back to normal.
- Retail sales easing but margins intact
- Consensus earnings upgrades expected
The pandemic impact is now history. Endeavour Group’s momentum is back, particularly in the Hotel segment where patrons have returned in force. The interim result was healthy, but attention should be given to potential legislative and regulatory changes approaching on gaming machines.
1H23 EBIT of $644m was up 15.8% on last year, driven by a solid recovery in Hotel EBIT of $256m +(111.6%), offset by slightly softer retail EBIT of $418m (-9.3%). Net profit for the period was $364m (+17%) giving the Board room to declare a dividend of 14.3cps.
Retail gross margin of 23.8% was helped by an improved mix of sales and reduced promotional activity.
The trading update shows a slight easing in retail sales against an elevated period last year. Trading in Hotels is consistent with three-year trends although there has been plenty of refurbishment activity underway across the portfolio. EDV is introducing more technology across its operations to facilitate better engagement with customers, and this is gaining traction. Online sales might be normalising but the effort to encourage the use of technology is becoming prevalent across the group.
As usual, there was very little commentary on the gaming machine contribution to Hotel earnings other than the upgrade of 854 EGMs within the total of 12,364 machines. EDV only has 55 hotels in NSW amongst its total 349 hotel portfolio, but the likelihood of regulatory change, including cashless gaming in Clubs and Pubs, is increasing as political debate on this issue intensifies. If NSW adopts this pathway, it will not take long before it is replicated in other states.
Investment View
The interim result was positive, and we think the market will be upgrading forecasts as a consequence. With the crippling impacts of the pandemic now behind it, EDV can begin to flex its strong market position in retail liquor and its large hotel portfolio.
We sound a note of caution on the gaming regulation aspect, but otherwise see a more settled period of earnings growth ahead for the company.
Figure 1: EDV 1H23 Result
Stock Overview
Share Price
Company Overview
Endeavour Group’s retail network includes 262 Dan Murphy’s and 1,434 BWS stores. The hotel group consists of 345 hotels and 5 managed clubs, plus 12,364 electronic gaming machines.
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