EDV
07/07/26
....................
Endeavour Group Limited (ASX:EDV) has faced recent financial strain characterized by flat revenue, falling net profits, and a high debt load since its 2021 spin-off. The company trades around $3.35 per share, reflecting a roughly 48% decline from its all-time highs and underperforming the broader market. [1, 2, 3, 4, 5, 6]
Key financial highlights include:
- Profitability: The company has remained profitable but is in a decline. Net profit recently fell by about 17.1% in its latest half-year report, yielding an annual net profit margin of around 3.09%. Overall 5-year average annual earnings growth sits at about 7%, though the past year's trajectory has been heavily negative. [1, 2, 3, 4, 5]
- Debt: The company carries a substantial debt load. Total debt stands around $5.8 billion, yielding a debt-to-equity ratio of roughly 134% in 2026 (though it has come down over the last few years). This high leverage remains a primary concern for Endeavour Group (ASX:EDV) Balance Sheet & Financial Health Metrics analysts. [1, 2, 3, 4]
These are its recent D/E ratios
2026 - 1.34
2025 - 1.43
2024 - 1.61
2023 - 1.66
2022 - 1.50
2021 - 1.62
- Return on Equity (ROE): The trailing twelve months (2026) ROE is 9.44%, while its return on assets is 4.47%. [1, 2]
- Dividends: Yield is roughly 5.1%; however, dividend policy revisions were announced alongside cost-cutting strategies as the company pivots to long-term investment. [1, 2, 3]
- Recent Momentum: The stock has seen extreme short-term volatility following the announcement of a three-year transformation plan targeting $300 million in cost savings. You can track the Endeavour Group Limited (ASX:EDV) - Share Price in real-time. [1, 2]
...................
Endeavour Group Limited (ASX: EDV) does not have a 10-year standalone trading history because it was demerged from Woolworths Group and listed on the ASX in June 2021. Its historical Price-to-Earnings (P/E) ratios are only available from 2021 onward, with the current trailing P/E ratio sitting at approximately 16.0x. [1, 2, 3, 4, 5]
The available historical fiscal year-end P/E ratios and the current valuation details break down as follows:
Track Historical P/E Ratios (2021–2026)
| Year / Period [1, 2, 3, 4, 5, 6, 7] | P/E Ratio | Valuation Context & Driver |
|---|---|---|
| Current (July 2026) | 16.0x | Lowered share price (~$3.37) offset by a compressed EPS environment. |
| June 2025 | 13.8x – 16.2x | Market compression pushed the stock to its lowest valuation multiples since listing. |
| June 2024 | 17.7x | Stabilization phase as retail drinks and hospitality metrics flattened. |
| June 2023 | 21.0x | Moderation from post-listing highs as interest rates cooled consumer demand. |
| June 2022 | 25.5x – 27.6x | Higher multiple sustained by strong post-pandemic hospitality sector recovery. |
| June 2021 | 63.8x | Initial listing spike driven by high market excitement and a temporary low supply of shares. |
Analyze Key Trends & Blind Spots
- Demerged Limitations: For any long-term valuation modeling (like a Shiller PE10), you cannot calculate a true 10-year historical average for EDV because its financials before 2021 were integrated into Woolworths. [1]
- Compression Cycle: Over its 5-year public lifespan, EDV’s P/E ratio has continually compressed from a peak of over 60x down to a historically stable range of 14x to 18x. [1, 2]
- Peer Comparison: At a ~16x multiple, EDV trades roughly in line with the broader S&P/ASX 200 consumer sector average and its direct grocery-adjacent peers like Metcash. [1]
.....................
ROIC vs WACC
Endeavour Group (ASX:EDV) has a recent Return on Invested Capital (ROIC) of approximately 0.70% to 2.14%, which tracks well below its Weighted Average Cost of Capital (WACC) of around 6.05% (with a 10-year WACC median of 5.21%). [1, 2]
Because Endeavour Group was only demerged from Woolworths Group and listed on the ASX in June 2021, a full independent 10-year history of distinct ROIC versus WACC data does not exist. [1]
Capital Returns and Cost of Capital
- Current ROIC: Ranging between 0.70% (trailing twelve months) and 2.14% (annualized metrics), indicating low relative efficiency in generating operating profits on the pool of capital deployed. [1, 2]
- Current WACC: Sits at 6.05%, which is roughly 16% above its historical 10-year blended median of 5.21%. [1]
- Economic Spread: The spread (ROIC minus WACC) is negative. An ROIC below WACC indicates that recent operational returns have lagged behind the theoretical minimum return required by debt and equity holders
...........
Buffett analysis
An analysis of Endeavour Group Limited (ASX: EDV) demonstrates how a dominant consumer staples business can experience a massive divergence between its underlying operational earnings and its statutory returns.
1. Historical Return on Equity (ROE) Trends
| Metric | FY2024 | FY2025 | FY2026 |
|---|---|---|---|
| Statutory Net Profit After Tax (NPAT) | $512M | $426M | $52M |
| Underlying NPAT (Before Abnormals) | $512M | $522M | $304M |
| Shareholders' Equity | $3,772M | $3,835M | $3,589M |
| Statutory Return on Equity (ROE) | 13.6% | 13.6% | 1.4% |
| Underlying ROE | 13.6% | 13.6% | 8.5% |
Key Takeaways:
2. The Buffett Benchmark Comparison
Warren Buffett searches for companies with a durable competitive advantage, low capital intensity, conservative debt profiles, and efficient capital allocation.
Benchmark 1: Consistently High ROE (>15%)
- Buffett Ideal: Seeks a long-term, predictable track record of ROE above 15% without relying on excessive leverage.
- EDV Reality: Even in its stable years (FY24–FY25), EDV maxed out at 13.6%. At its current underlying rate of 8.5%, it fails this core metric. It operates in a highly competitive, capital-heavy brick-and-mortar footprint that limits capital-light compounding. [1]
Benchmark 2: Total Liabilities to Equity Ratio (<0.80x)
- Buffett Ideal: Buffett famously prefers companies that "finance themselves with equity, not debt." He generally looks for total liabilities-to-equity to stay below 0.80x. [1]
- EDV Reality: As of late 2026, EDV's total liabilities are $8.1 billion against total equity of $3.6 billion. This yields a total liabilities-to-equity ratio of 2.25x, drastically exceeding Buffett's safety parameter. If looking strictly at financial Debt-to-Equity, it sits at an elevated 165.3%. [1, 2]
Benchmark 3: Interest Coverage (>5.0x)
- Buffett Ideal: Operating income should comfortably cover interest payments to ensure the company can weather any macroeconomic storm.
Benchmark 4: Capital Allocation & Retained Earnings Efficiency
- Buffett Ideal: Capital expenditures should ideally be lower than depreciation, leaving massive free cash flow (Owner's Earnings) to be reinvested into high-return projects or returned to shareholders.
- EDV Reality:
- The Positive: EDV does possess an incredibly reliable cash-generation engine. It brought in over $1.15 billion in operating cash flow recently, utilizing it to balance $358 million in dividends and $462 million in net debt paydown.
- The Headwind: EDV is entering a necessary "reinvestment phase." To keep its competitive moat against competitors, management is forced to boost near-term capital expenditure for hotel renewals and digital updates. This means fewer immediate "owner's earnings" are left unencumbered. [1, 2, 3]
Summary Verdict
From a Buffett perspective, ASX: EDV possesses the brand moats he likes (Dan Murphy's dominates Australian liquor retail), but its financial architecture breaks his rules. The business relies heavily on debt leverage to engineer its returns, faces immediate margin compression, and carries a debt profile that violates conservative value-investing benchmarks.
.................
No comments:
Post a Comment