ADVISOR WATCHLIST
Shaun Minahan
Endeavour Group Limited ( EDV ) - Buy
Endeavour Group recently demerged from Woolworths , and is engaged in the drinks retail and hospitality businesses in Australia . It operates its retail drinks network through Dan Murphy ’ s and BWS stores , and a portfolio of licensed hospitality venues . Earnings are defensive and fairly predictable . With sales three times larger than its nearest competitor , Endeavour has many cost advantages when it comes to distribution , administration , and marketing costs . Earnings are expected to grow by around 10 % in FY22 and is trading on around 23x . We expect Endeavour to yield around 3.6 % FF .
CA , Associate - Senior Equities Advisor sminahan @ burrell . com . au ( 07 ) 5583 7800
Tony Killer
Senior Investment Advisor – Equities tkiller @ burrell . com . au ( 07 ) 4153 4499
Endeavour Group ( EDV ) started trading on the ASX in late June . Whilst the name will not be familiar to many investors the businesses they own are . Dan Murphys , BWS and ALH Pubs make up the bulk of the Endeavour Group business which was a result of a demerger from Woolworths . This business which has a market capitalisation of around $ 11bn is one that I believe should do well as a stand-alone business . This is not to say that Woolworths were not a good parent entity , they were , however I had the feeling that the business was not growing as fast as it could because of social issues that come with owning and operating pubs and poker machines not being something Woolworths enjoyed . Given the strong Balance Sheet , reliable cashflows and an abundance of opportunities I am looking forward to hearing how the “ unshackled ” Management Team will drive the business forward . Will they buy more Pubs and Poker Machines ? Will they expand the BWS and Dan Murphy outlets ? Will they expand into new complimentary sectors ? I think the answer is YES to all those questions and I would think they already have a hit list of investment options .
Link Group ( LNK ) has been around for quite some time and is best known to Broking clients because of the Link Market Services business which is one of our two largest Share Registry providers in Australia . The recent ownership restructure and listing of Pexa Group Ltd ( PXA ) onto the ASX has unlocked the underlying value of the significant shareholding that Link has maintained in this business . Link has a market capitalisation of $ 2.7bn but when you deduct the current value of the PEXA holding of 79.2m shares or $ 1.45bn and add back the recent $ 180m cash they will receive as a result of the recent restructure , I think the stock is looking undervalued given the existing businesses have been overlooked by buyers who were concentrating on the PEXA stake . I am happy to buy the Group for exposure to growing sectors I also think there is a big chance that some of this excess cash will find its way back to shareholders by way of a capital return or an on market buyback . Given the lack of franking credits I would think a special dividend or off market buyback is less likely . On both counts I look forward to the next report in August .
Humm Group ( HUM ) quite often gets grouped in with the other Buy Now Pay Later ( BNPL ) companies like Afterpay and Zip , but that is only a part of what they do . Until recently known as FlexiGroup , the company has been operating profitably in the Commercial Leasing / Finance and Finance Cards markets for many years . The move to BNPL options has been different to competitors as they offer multiple products depending upon limits . The “ bundll ” product for example competes with Afterpay and Zip , but the “ Humm ” products can be for $ 3,000 , $ 10,000 or even $ 30,000 purchases on longer repayment periods . Over time I would think a large volume of the traditional Cards business will transition onto the newer BNPL product
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