Australian Hospitality And Gaming Will Flourish On Digital Progress

Key Takeaways

• Volume growth from renewed hotels and digital expansion positions the company for sustained sales, margin, and profitability improvement as consumer confidence returns.
  
• Ongoing efficiency programs and urban hospitality trends support enhanced operating margins and long-term cash flow resilience.
  
• Structural market decline, rising cost pressures, intense competition, and regulatory risks threaten Endeavour's ability to grow earnings and preserve margins across core business segments.

Catalysts

Engages in the retail drinks and hospitality businesses in Australia.

• As inflation moderates and real wages rise in Australia, consumer spending on hospitality and premium alcoholic beverages is expected to rebound, supporting a return to retail sales growth and improved earnings over the medium term.
  
• The company's ongoing investment in hotel renewals, gaming fleet upgrades, and food & beverage enhancements is driving higher guest engagement and transaction volumes; historical data shows these renewals deliver sales growth well above the network average, providing a catalyst for EBIT and margin expansion.
  
• Rapid growth in online and omnichannel sales, especially among millennials and Gen Z, leverages broader shifts in consumer habits towards digital and convenience-driven retailing, which will increase market reach and support higher revenue and profitability.
  
• Increasing urbanization and higher inner-city density are expanding the opportunity for on-premise consumption across Endeavour's large hotel portfolio, tapping into secular trends of socialization and experiential spending, which is supportive for long-term sales and margins.
  
• Cost optimization initiatives, including the endeavourGO and One Endeavour programs, are delivering sustained improvements to operating efficiency, lowering the cost base and supporting higher net margins and cash flows as these programs scale and automation increases.

Endeavour Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Endeavour Group's revenue will grow by 2.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.5% today to 4.1% in 3 years time.
• Analysts expect earnings to reach A$542.6 million (and earnings per share of A$0.3) by about August 2028, up from A$426.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, up from 16.6x today. This future PE is lower than the current PE for the AU Consumer Retailing industry at 25.1x.
• Analysts expect the number of shares outstanding to grow by 0.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.54%, as per the Simply Wall St company report.

Endeavour Group Future Earnings Per Share Growth

Risks

• Subdued consumer spending and evidence of structural market decline in retail liquor-especially noted by management as "cost of living pressure" and a lagging recovery relative to general retail-suggests secular, not just cyclical, headwinds that may constrain top-line revenue growth in Endeavour's core retail segment.
  
• Ongoing increases in wage inflation (4.25% award wage increases) and staffing costs, partially offset by cost programs, are imposing sustained margin pressure, and management's heavy reliance on continual cost-outs could become less effective over time, impacting future EBIT and net margins.
  
• Persistent competitive intensity-marked by more aggressive pricing, promotions, and new entrants (such as online-only and discount channels)-is driving greater price competition in both online and physical channels, risking margin compression and weaker retail earnings even if volumes recover.
  
• Regulatory, compliance, and public policy risks remain elevated-particularly in gambling/gaming and liquor-where any tightening of laws (e.g., trading hours, advertising restrictions, or licensing) could disproportionately diminish high-margin revenues in hotels and gaming segments, as well as escalate operating costs.
  
• Questions about Endeavour's capacity for meaningful retail EBIT growth surfaced in analyst discussions, with management unable to provide medium-term clarity about cost burdens (especially relating to the One Endeavour technology separation), raising investor concerns that the retail business may struggle to grow earnings in the coming years, putting long-term profitability at risk.

Valuation

• The analysts have a consensus price target of A$4.428 for Endeavour Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$6.1, and the most bearish reporting a price target of just A$3.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$13.1 billion, earnings will come to A$542.6 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of A$3.95, the analyst price target of A$4.43 is 10.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.