Short pint

3Q23 SALES

Need To Know

• 3Q retail sales +1.2%, comp sales growth +0.2%
• Hotel sales +18%, added 5 new hotels
• Higher capex and interest costs ahead

Endeavour’s retail sales momentum has slowed to a crawl, but hotel sales are still enjoying a post-COVID fling. With some extra capex ahead and higher interest rates biting, the consensus view of earnings might see some revision.

EDV added five hotels to its portfolio and sold one taking the total to 353 hotels. Patrons are still flocking back to pubs that offer excellent food, bars and accommodation and EDV continues to refurbish the portfolio in this regard. This is a key growth strategy for the group. Hotel sales increased 18.5% to $405m in the quarter but EDV noted the normalising sales growth in gaming. As the country’s largest gaming machine operator, EDV is exposed to regulatory risk and while the NSW election has passed without a major policy change, we expect EDV will need to anticipate the introduction of cashless gaming in all states in the future. We estimate EDV has approximately 38% of its EGMs in its Victorian hotels where state gross gaming revenue is headed for a record year. The new hotels added 112 EGMs to the portfolio which we estimate at 12,760 EGMs.

In the premium Paragon Wine Estates business, EDV announced the acquisition of the Cape Mentelle winery in Margaret River.

Retail liquor sales increased 1.2% on the previous year, although in-store sales lifted 2.8%. Online sales have eased back from 9.6% of total retail sales in the pcp to 8.1% in this quarter. About half of online sales are click and collect. EDV noted that promotional activity in the market remains elevated, particularly online. Given excise driven price increases of 3-5% in February, retail sales volumes are in decline.

Capex for FY23 is expected to be between $470-520m which is well ahead of consensus forecasts. The higher spend is mainly due to the 10 hotel acquisitions so far this year. Interest costs will also be about $30m higher than consensus at $240-260m which will impact earnings forecasts.

Investment View

Liquor sales continue to normalise following the elevated period throughout COVID-19. Consumer behaviour is attracting customers back into the hotels but even here, the signs are evident of ‘freedom fatigue’ as consumers begin to watch their budgets.

The stock is range trading and although the hotel portfolio has a clear growth strategy, the larger retail liquor division is a more mature business.