There are multiple factors that contribute to a stock being considered attractive by our analysts. Endeavour is an example of a stock that ticks the boxes.

Endeavour (ASX: EDV) is Australia's pre-eminent omnichannel liquor retailer, operating the largest network of brick-and-mortar stores throughout the country, with more than 1,600 liquor outlets across the well-known Dan Murphy's and BWS brands.

Endeavour also has substantial interests in hotels and electronic gaming machines, operating more than 12,000 gaming machines across its portfolio of more than 300 hotels, pubs, and clubs. Endeavour is one of Australia's leading employers, with staff of more than 28,000 throughout Australia.

Wide moat

A stock with a wide moat can protect and grow its earnings over at least a period of 20 years. Endeavour Group has a wide economic moat in its core liquor retailing segment based on scale-based cost advantage.

Firms with a scale-based cost advantage can undercut competitors on price while earning similar or higher margins, or they can charge market-level prices while earning relatively high margins. Endeavour's hotels business also benefits from intangible assets that support economic profit generation for the segment.

We estimate the total addressable market for Australian off-premises liquor retailing at $20 billion in fiscal 2020, and estimate Endeavour’s retail segment controls 47% of the market through its BWS and Dan Murphy’s brands which collectively have approximately 1,600 outlets throughout Australia. This is significantly larger than Endeavour’s closest integrated retail competitor, Coles Group, which we estimate holds 17%, and wholesaler Metcash’s independent customers which collectively hold 26%.

Endeavour’s dominant scale allows it to fractionalise distribution, administration, and marketing costs in a way that smaller competitors cannot. Stemming from its domineering market position and significant scale advantages, we estimate Endeavour to have a material, maintainable operating margin advantage over all its competitors.

Exemplary capital allocation

Leadership is ultimately an exercise in decision making and running a company is no different. CEOs make thousands of decisions over the course of their careers. Some are trivial and some can make or break the future of the company. Capital allocation refers to the way that management in a business spend their capital, and is particularly important in the current environment.

The capital allocation decisions that are made are based on the best utilisation of the capital to create value for shareholders – the owners of the company. This is not a static decision, and will vary based on the company, the industry and market conditions.

We can simplify this down to the three avenues for deploying capital - the balance sheet, investing in the business (internal and external) and shareholder distributions.

Endeavour Group has an Exemplary capital allocation rating – the highest rating Morningstar awards. The balance sheet is sound, investments as a subsidiary of Woolworths Group have been exceptional and distributions to shareholders are appropriate.

Balance Sheet

Endeavour’s balance sheet is relatively strong due to the well-entrenched ability to generate cash. This is supported by the wide moat in the retail liquor market and entitlements to operate over 12,000 electronic gaming machines.


Endeavour’s investments have historically been very well directed with the expansion of outlets across the Dan Murphy’s and BWS brands. This has built market share and strengthened their moat built on scale-based cost advantage. Endeavour has also invested in the online sales channel well ahead of major competitors, recognising the ongoing consumer shifts toward the convenience, range and price discovery offered by online.


Given Endeavour’s membership of the Woolworths Group, distributions to shareholders cannot be evaluated in isolation. While Endeavour hasn't yet committed to a dividend payout ratio, this approach is appropriate given Endeavour’s newly found ability to implement strategy independent of Woolworths Group. The dividend when issued is fully-franked.

Low uncertainty

Endeavour is awarded the lowest uncertainty rating by Morningstar analysts. Endeavour Group is subject to risks that are in large part common to most retailers, but as an established consumer staple retailer, we expect its cash flow volatility is much lower than for discretionary retailers. The low uncertainty is based on midcycle assumptions, and ignores the volatility that may occur in the shorter-term due to the demerger from Woolworths Group.

As an alcohol and gambling company, Endeavour has to be aware of ESG risks. The risks associated with the off- and on-premises retailing of alcohol products is predominantly managed by the substantial taxes on alcohol consumption in Australia which limits the potential for the abuse of liquor to a socially acceptable level.

In the hotels segment, Endeavour also contributes a substantial amount of tax revenue to internalise the negative impacts of gambling abuse and attempts to restrict its gaming operations above those imposed by harm minimisation legislation, such as through pre-commitment programs.


Endeavour is currently a four-star stock, making it undervalued. It currently trades at an 11% discount to our $6.10 value.

Investors will have their own boxes

Risk and uncertainty, moats and capital allocation are all inputs into understanding the quality of the business that you’re investing in and deciding how attractive a stock is at its current price.

Ultimately, investors will have their own boxes that they will have to tick. This would be outlined in your Investment Policy Statement (IPS) and guide the characteristics of the investments that you hold. Mark LaMonica recently wrote on his top ten holdings and how those investments fit into his strategy.