Endeavour Group Ltd (ASX: EDV) shares will be one to watch this morning.
This follows the release of a broker note out of Goldman Sachs which spoke positively about the alcohol retailer.
What did Goldman say about Endeavour shares?
Goldman Sachs has been looking over food & beverage (F&B) and home retailers and Endeavour came out with a glowing report card.
According to the note, the broker has initiated coverage on the alcohol retailer with a conviction buy rating and $8.00 price target.
Based on the current Endeavour share price of $7.12, this implies potential upside of 12.5% over the next 12 months.
In addition, the broker is forecasting fully franked dividends per share of 20.6 cents in FY 2022. If we add this 2.9% dividend yield into the equation, this brings the potential total return to almost 15.5%.
What did the broker say?
Goldman has named three key reasons for its positive view on Endeavour shares.
The first is its significant advantage in scaled consumer assets and loyalty which the broker believes gives the company an omni-channel strategy edge.
It commented: "Given it is a pureplay alcohol retailer, we find it extraordinary that it has the breadth and depth of consumer assets that can rival a top staples grocery retailer. To quote some numbers, Dan's, ~50% of EDV.AX's sales and with only 251 stores nationally, has 6.3m members as of 1H22 and ~3.9m are active. This compares to Coles's Flybuys, Australia's second largest grocery retailer, with 6.3m active households in FY21."
Another reason to be positive is its leadership position in the market.
Goldman explained: "EDV's Retail division has ~38.5% market share of Australia's Liquor retail market, 1.75x next player Metcash at 22%. Given the complexity of the portfolio with high number of SKU and specialist skills required for procurement, it will be difficult for incoming competitors to build scaled competition quickly. In addition, the company has two other avenues of sizeable alternative revenue growth that are margin-accretive to the retail business – Pinnacle Brands and Hotels."
Finally, the third reason for Goldman's positive rating on the Endeavour share price is its limited exposure to global supply chain disruption and cost inflation.
The broker said: "As we look at global commodity inflation, we expect alcohol production to be largely protected. EDV does have approximately ~A$250m exposure to Euro as part of Pinnacle portfolio, but this is ~2/3 hedged from a currency risk perspective, and we expect products to be substitutable should there be global supply disruptions."
