Domino's Pizza Enterprises Ltd

DMP Details

FY17 revenue exceeded $1 billion: Domino’s Pizza Enterprises Ltd.’s (ASX: DMP) stock plunged 2.6% on September 12, 2017, and has been eyed by short sellers recently. For FY17, the group reported 28.8% year on year (yoy) growth in underlying Net Profit After Tax (NPAT) at $118.5 million, led by strong growth in Network Sales at 18% to $2,318.5 million. Notably, the Group revenue for FY17 exceeded $1 billion for the first time at $1,073.1 million (up 15.4%). Accordingly, DMP delivered a +28.3% growth in EBITDA at $230.9 million. Moreover, the continued roll-out and optimisation of digital platforms, and the opening of 178 new stores for the year, drove the strong Network Sales growth, which was +8% higher on a Same Store Sales (SSS) basis. Further, Australia and New Zealand (ANZ) recorded its fourth consecutive year of double digit network sales growth at 16.6% (+13.6% on a SSS basis), Europe network sales growth was at 26.9% (+2.8% SSS), and Japan lifted network sales growth at 8.4% (-0.6% SSS).

Lately, Dragontail Systems Limited (ASX: DTS) announced that it is progressing testing of its computer-vision QT quality system with Domino’s Pizza Enterprises. Dragontail first launched its QT system, a revolutionary computer-vision quality control system in December 2016. The tests underway with Domino’s Pizza Enterprises are the first to be undertaken by a major global pizza QSR chain. The QT system’s sensor and camera automatically monitor the preparation and cooking process by using proprietary advanced AI machine-learning technology.

Although DMP stock has fallen in last one year, the stock still looks to stay under some pressure at the back of the issues relating to full-year earnings’ result that has been below expectations and guidance, and earlier allegations of staff underpayment. We maintain our “Expensive” recommendation on the stock at the current price of $ 41.14

Collins Foods Ltd

CKF Details

Completed Netherlands acquisition: Collins Foods Ltd. (ASX: CKF) has recently completed the acquisition of 16 KFC restaurants in Netherlands and this is expected to drive growth momentum in said market. For FY17, CKF’s revenues increased 10% yoy to A$633.6 million and EBITDA grew 8.9% to $81.3 million. However, net income decreased 4% to A$28 million due to 9% increase in operating expenses and underlying Net Profit After Tax increased by 14.1% to $34.3 million compared to the prior period. Revenue was driven by 10% growth in KFC Restaurants segment to A$549.5 million.  During the year, with the acquisition of 12 restaurants in Germany and 16 in the Netherlands, CKF began the international expansion of its KFC business. Moreover, these were significant and value accretive acquisitions, and will aid in further expansion opportunities in Europe.

The Group generated net operating cash flows of $60.6 million, up $10.9 million on the prior period due to higher EBITDA and working capital benefits from the acquisitions. Accordingly, net debt increased to $133.1 million due to the German acquisition and, net leverage ratio (net debt to EBITDA) increased to 1.59 from 1.52 in the prior period.  The stock rallied over 16% in the past three months while it is up 31.3% in the past one year (as of September 11, 2017). We believe that the stock is already moving on the higher side of ASX ledger and maintain an “Expensive” recommendation at current market price of $ 5.84

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