Endeavour and WiseTech are both trading at a meaningful discount to our fair value estimate and earn a Wide Economic Moat Rating from our analysts.

Endeavour Group (ASX: EDV)

Endeavour is Australia’s preeminent 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 of 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 60% of EBT derived through the retail business and 40% 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. However, we anticipate a lasting trend to lower liquor consumption per capita to offset population growth and premiumization.

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 underpin top-line recovery as the industry rationalizes.

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 range competes in the strongly growing online channel, and irrational pricing could erode contribution margins of Endeavour’s online liquor sales.

WiseTech Global (ASX: WTC)

WiseTech’s long-term strategy centers on becoming the operating system for global trade and logistics as the industry digitizes.

We expect the logistics industry to digitize rapidly over the next decade. The logistics industry currently operates with a relatively low level of digitization. However, the market for logistics services naturally selects for the lowest-cost providers and we see digitization as a key driver of cost-savings. We therefore see the process of digitization as inevitable, either through companies adopting digitization to remain competitive or through digital leaders taking market share from the digital laggards.

WiseTech provides logistics companies the technology to digitize. WiseTech’s core product suite, CargoWise, provides the best-in-class software solution for international freight-forwarding by air and ocean, and customs and compliance. We see logistics companies that use the CargoWise international freight-forwarding solution significantly outperforming their peers due to the efficiency and productivity improvements the platform provides. We therefore expect this solution to become the industry default, either through increased customer adoption or through WiseTech’s customers taking market share.

We expect WiseTech to leverage its already dominant position in international freight-forwarding to move into downstream adjacencies, which consist of, in order of functional proximity, road and rail and warehousing. Additionally, with the acquisition of e2open, we also expect WiseTech to move into upstream adjacencies, as it starts servicing beneficial cargo owners with their logistics procurement processes.

Bulls say

  • CargoWise’s international freight-forwarding solution is best-in-class and we expect this solution to become the industry-default.
  • WiseTech is well placed to leverage CargoWise’s market position in international freight-forwarding into adjacent services such as customs and compliance, rail and road, and warehousing.
  • The logistics industry currently operates with a relatively low level of digitization, but we see the process of digitization as largely inevitable.

Bears say

  • The logistics industry is still in the early stages of digitizing, meaning there is high uncertainty as to how large the market opportunity will be for WiseTech’s current and future products.
  • Following the resignation of founder White from the CEO role and his transition to the board, it is unclear whether the company will have the same level of executive leadership.
  • WiseTech’s hasn’t yet incorporated all of its acquisitions into the CargoWise product suite or e2open, and the return on those investments could be dilutive if they lack strategic attention.