Endeavour Group (ASX: EDV) is the only ASX share with a wide moat and is currently trading in 5 star territory.

Endeavour has had a slow start to Fiscal 2026, but sales momentum to improve with consumer backdrop.

Endeavour’s fiscal 2025 sales of $12.1 billion and reported profit of $425 million were within management guidance. Group sales declined by 1%, normalized for 52 weeks. The soft sales performance meant operating margins were squeezed, with normalized underlying EBIT down 10%.

Why it matters: The 14% decline in normalized underlying net profit after tax to $436 million was in line with our estimate. But liquor retailing sales are softer than we expected in the first seven weeks of fiscal 2026. Improving consumer budgets and sentiment are yet to drive greater demand for at-home liquor.

  • We forecast real income growth to increase demand, with potential interest rate cuts further boosting spending, but now expect liquor retailing sales momentum to build more slowly. We see liquor sales increasing 2% in fiscal 2026, down from 5%, but improving from a 1% decline fiscal year to date.
  • Longer-term, we forecast liquor retail sales to increase at a compound annual growth rate of 4%. We expect population growth, inflation, and a trend to premium products to underpin this growth, offset by a gradual decline in alcohol volumes consumed per capita.

The bottom line: We maintain our $6.10 fair value estimate on wide-moat Endeavour. Shares remain materially undervalued. We believe the market is expecting a more protracted earnings recovery and structurally lower long-term margins.

  • We think weak liquor demand is cyclical. The tail end of the reset in at-home liquor demand following pandemic boom times is coinciding with stretched household budgets. However, macroeconomic drivers are improving, and at-home consumption volumes are back to trend levels.
  • Endeavour is Australia’s largest liquor retailer. We expect its scale advantage to support structurally higher margins than competitors. We estimate it is holding on to its market share while maintaining this advantage, and anticipate group pretax margins to rise with improving sales growth.

Improving consumer backdrop yet to show in Endeavour’s liquor sales

Endeavour is Australia’s pre-eminent omnichannel liquor retailer, operating the largest network of brick-and-mortar stores throughout the country, with more than 1,700 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 over 300 hotels, pubs, and clubs. Endeavour is one of Australia’s leading employers, with staff of some 30,000 throughout Australia.

Endeavour’s business is divided into two segments. Its retail segment is Australia’s leading omnichannel liquor retailer, while its hotels segment provides hospitality services and gambling operations.

Endeavour’s retail segment is also vertically integrated, supported by Pinnacle Drinks private-label portfolio, which operates several wineries, as well as bottling and packaging facilities. Products produced are supplied exclusively to Dan Murphy’s, BWS, and ALH Group in Australia and provide a source high-margin differentiation while also minimizing supply chain risks in the wine category.

Shifting consumer trends toward online shopping and convenience have led to strategic investments in online shopping platforms and delivery capabilities. About 9% of all Endeavour’s liquor sales are transacted online.

Endeavour’s revenue is highly skewed to the retail segment, which we forecast will contribute about 80% of revenue over the next decade, with the balance coming from the hotels segment. The split is more evenly balanced at an EBT level due to the higher margins achieved in the hotels business, with approximately 65% of EBT derived through the retail business and 35% through the hotels business.

We expect consumer demand for alcohol to be relatively steady through the economic cycle, exhibiting attributes of consumer defensives. We estimate the Australian hotels market will predominantly be driven by the same factors as the off-premises retail liquor market, namely population growth and inflation.

Bulls say

  • Endeavour’s dominant retail market share of about 50% is multiples of its closest competitor and provides a source of long-term maintainable cost advantage.
  • Endeavour’s hotels segment, with its electronic gaming machines, is proving resilient during periods of consumer weakness.
  • Endeavour’s wide economic moat, strong competitive positioning and strong balance sheet will underpin a maintainable and steadily growing dividend.

Bears say

  • The growth of online shopping could detract from Endeavour Group’s profitability as the online sales channel has incremental costs above traditional brick-and-mortar sales.
  • Endeavour faces ESG risks through its exposure to electronic gaming machines and alcohol retailing. While gaming reforms in Victoria and NSW are incorporated in our base case valuation, material value destruction due to ESG remains a tail risk.
  • Amazon Australia’s liquor ranging competes in the strongly growing online channel and irrational pricing could erode contribution margins of Endeavour’s online liquor sales.

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Terms used in this article

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.