Why Are Analysts Upbeat About DMP Now?

  • Mar 09, 2019 AEDT
  • Team Kalkine
Why Are Analysts Upbeat About DMP Now?

When someone hears about “pizza”, the first name that comes to the mind is the Domino’s Pizza (ASX: DMP). Domino’s Pizza, which was founded in 1960 and headquartered in Louisville, Kentucky is a multi-billion-dollar global pizza brand which operates its quick service restaurants (QSR) throughout the globe (some company owned and others under the franchising model).

On 20th February 2019, the company declared its 1HFY19 results on ASX. The underlying network sales of the company grew from $1.24 billion in 1HFY18 to $1.43 billion in 1HFY19, posting a growth of 14.6%. This double-digit Network Sales growth continues as a result of new organic store additions, unit sales growth and strategic acquisitions. The company recently opened its 16,000th store globally.

On the revenue front, the company has posted a healthy growth of 23.7% to $702 million in 1HFY19 from the $567.6 million in 1HFY18. Group revenue was benefitted from the consolidation of the Ad Funds into the financial statements of $60.4 million. Japan and Europe combined accounted for more than 70% of the total revenue and, more than half of the EBITDA.

On the balance sheet side, the picture seems to have been improved as well. The total assets increased from $1.30 billion in 1HFY18 to $1.36 billion in 1HFY19. That’s an increase of $65.7 million. The liabilities have also increased but less when compared to the assets in absolute terms. Liabilities increased from $994.7 million in 1HFY18 to $1.03 billion in 1HFY19, an increase of $42.4 million.

The company is expanding aggressively in some of the major parts of the world like Japan, Europe. In Europe, the company has opened 33 new organic stores in H1FY19 and achieved a major milestone of 1,000th Domino’s-branded store in the region. As a result of the updated penetration model analysis in Benelux, Management has upgraded its future outlook by +100 stores.

Accordingly, Europe’s outlook lifts to 2,700 stores by 2025-2028, up from 2,600 stores by 2025. They have also enhanced their menu with popular products and offerings including Introduction of new snacking product, the Cal’z range, adding Fondue Pizza to the favourite Raclette Pizza, Introduction of first vegan pizzas has developed a new customer segment etc. In Germany, Europe Rollout of the web-to-print portal is providing Franchisees faster and lower cost Local Store Marketing.

In Japan, 31 new organic stores opened in H1 FY19, including six new Franchised stores, ending 1HFY19 with 550 stores (ahead of plan). Revitalised focus on food innovation has delivered multiple products that have delighted customers, including Cheese Burst Crust, Pancake Dessert, as well as Ultimate Italian and Premium Roast Pizza ranges. The company is launching On-Time Cooking concept in Japan which will be providing hotter, fresher pizzas for carry-out customers. A review of the market position and customer demand, backed by stronger unit economics, has lifted Japan’s Future Outlook to 1,000 stores (+150 stores) by 2025-2028, up from 850 stores by 2025, according to the management.

For the outlook of 3-5 years, the Group has maintained its annual same-store sales growth of 3%-6%, annual store growth of 7%-9% and annual net capex of $60 million - $70 million. The management is not taking “no” for an answer in the near future and is going all in to stay ahead of the peers on a global scale.

Investors have seen a huge bull run in the stock from 2010 to mid-2016 wherein the prices rallied massively. In 2010, the stock was trading around A$5 and by the end of 2016 it had already touched the levels of A$80.6, giving gigantic return of more than 1500% or 14x. After this unprecedented rally the stock retraced around 50% from the peak where it is forming a strong base. It has a strong support around A$38 – A$40 from where the stock has bounced multiple times. As of 8th March 2019, the stock is trading at CMP of A$42.3 which is close to the support levels. Investors, therefore, might be eyeing to any substantial dip in the near future.


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