Woolworths VS Endeavour Group: the story so far

The share price of Endeavour Drinks proved volatile following the demerger, though the prospect of unlocking long-term shareholder value remains.

The share prices of both Woolworths (ASX: WOW) and Endeavour Group (ASX: EDV) were predictably volatile following the drinks demerger last week.

Following the official 1-for-1 spin-off on June 24, the Woolworths share price trended higher, if just slightly, as investors 'give the nod' to the divestment.

Endeavour Group, by comparison, opened at $6.50 per share during its first day as a stand-alone public company, before falling to an intraday low of $5.77 per share, though inevitably rebounding during last Friday’s session.

Endeavour opened Monday's session at $6.15 per share; giving the company a market cap in excess of $11 billion.

Woolworths VS Endeavour Group: the story so far

For those not aware, in 2019 Woolworths announced plans to spin off its drinks and hotels business – Endeavour Group.

As with many decisions of this kind, the Board, at the time, argued that the demerger would help unlock long-term shareholder value for the company.

Not only that, but management said the demerger would afford Endeavour greater access to capital, while also touting improvements that may be driven off the back of a simplified organisational structure.

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A battle of giants

With Endeavour now spun off, Woolworths will see the vast majority of its earnings concentrated in its Australian food business; while Endeavour, will derive the majority of its earnings from its retail drinks operations.

Looking at the financial impact of this breakdown, on a post demerger basis, Woolworths Group FY20 revenue came in at $53,131 million, profits (NPAT) reached $1,303 million and total team members came in at 175 thousand.

Broken down by division, 85% of group FY20 earnings (EBIT) were derived from AU Food, 14% from NZ Food and 1% from Big W.

By comparison to Woolworths Group, Endeavour Group as a standalone entity was reported to have FY20 revenues of $10,624 million, against earnings of $328 million, and over 38 thousand team members. Post-merger and on a FY20 basis, 77% of earnings (EBIT) would be derived from the company's retail drinks business, while the remaining 23% would come from hotels.

Beyond the basics, the strength of Endeavour’s Dan Murphies and BWS brands were also positioned as a key strength for the company moving forward, with research revealing they are the number 1 and 2 most popular retail drinks destinations in Australia.

Such research looks to be bolstered by a strong online presence, with the company touting strong web traffic and recording $637 million in e-commerce sales across FY20. Off the back of the COVID-19 pandemic, the company has seen growth in its e-commerce operations accelerate, with management noting its e-commerce sales hit $483 million during the first-half of FF21, implying a year-on-year growth rate of around 50%.

Returning capital to shareholders?

In a presentation dated 10 May, Woolworths, in discussing its post-merger considerations, noted that 'Subject to trading conditions and Board approval, $1.6b - $2.0b could be returned to shareholders.'

A potentially interesting titbit for income-focused investors.

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