Endeavour Group Ltd (ASX: EDV) shares started the week with a disappointing decline.
In response to the drinks giant's full year results, the ASX 200 stock ended the session almost 7% lower at $5.15.
While this is disappointing, one leading broker believes that the selloff was an overreaction and has created a buying opportunity for investors. Goldman Sachs said:
Market over-reaction despite solid management against challenging industry; reiterate Buy on attractive valuation.
What is the broker saying about this ASX 200 stock?
According to a note out of Goldman Sachs, its analysts were relatively pleased with the results. They commented:
EDV reported 2H24/FY24 results in-line with GSe on both Group sales and EBIT. The stock traded weaker through the day on 1) weaker 7 week trading and 2) higher lease expenses. Reflecting the results, our FY25/26e EBIT and NPAT is cut by -1.9%/-2.7% and – 4.0%/-4.4% on lower Retail EBIT margins and higher interest expense. Our sales forecasts are largely unchanged given improving sales trajectory. Our updated FY25 EBIT/EPS growth is +1.6%/1.2% YoY (52 vs 53wk growth), improving to FY26/27e EBIT growth of 5.0%/6.5% respectively.
What else?
Goldman also highlights three items from the results that it thinks investors should view positively. The first is its market share gains in the retail market. It notes:
Management noted market share gains in FY24 led by Dan Murphy's strong price leadership. FY24 GPM gained +60bps to 24.4% with combination of mix improvement and productivity. Excluding On Endeavour costs, operating margins expanded 20bps to 7.0% which forms credible base for FY27 onwards.
It was also pleased to see that the ASX 200 stock's Hotels gaming performance is stabilising. The broker adds:
FY24 vs FY23 gaming revenue +2.1% YoY (flat adjusting for 52 week) while non-gaming revenues continued to increase in share driving Hotel GPM expansion of 70bps to 84.8%.
Finally, while there are significant costs for its One Endeavour technology investment, Goldman notes that this will be offset from productivity gains. It adds:
Despite the company carrying double tech costs, this is not normal state and will begin to reduce from FY27. EDV has found ~A$290mn+ productivity (Endeavour Go) to largely offset GSe A$200mn+ of One Endeavour costs FY23-FY26e.
Potential for big returns
In response to the results, Goldman has reiterated its buy rating with a slightly trimmed price target of $6.20 (from $6.30). Based on where this ASX 200 stock currently trades, this implies potential upside of just over 20% for investors over the next 12 months.
And with Goldman forecasting a fully franked 4.3% dividend yield in FY 2025, this boosts the total potential return to almost 25%.
