Domino’s Pizza Enterprises 

Decent FY18 Numbers: Domino’s Pizza Enterprises Limited (ASX: DMP) had a good year FY18 with higher revenue and Net profit attributable to the shareholders. The company recorded the profit after tax of $136.2 Mn, an increase of 15% over the previous corresponding period. Domino’s has added six stores a week on an average taking the total to 145 new stores and undertook acquisition of 163 stores from other brands.

Same Store sales have come in positive for the company in all the markets including Australia, Japan, and Europe. The company has entered FY19 on the positive note, opening 12 new stores in the first six weeks and the same-store sales increase of 4.4%. In past investigations, the company was alleged of underpaying the staff to which it responded stating that most of the issues were administrative errors and that it has been resolved now. On the analysis front, the company recorded FY18 Net margin of 10.6% which is broadly in-line with the industry media of 11.1%, signifying the efficiency of the company in converting the revenue to profit. Over the years, Domino’s has also generated a positive return of shareholder’s fund with ROE at 33.6%, higher than the industry average of 12.9%.

A near-term price cool off in sight:  The company might, however, be overvalued at the current juncture as it trades at the PE multiple of 37.78x which is high compared to peers. The stock has generated YTD return of 14.60% but might take a breather for few trading sessions before rebounding. The current level indicates the undecisive status of the investors on the stock. Although the company (with market cap of $ 4.5bn) has been a consistent performer and value generator for the investors, the current price might have taken into account all the recent positive developments. Moreover, Domino’s has recently announced new placement at the discounted issue price of $40.95 which could trigger a sell-off in the stock as investors would flock to book profit at higher levels. We, therefore, give an “Expensive” recommendation on the stock at the current market price of $52.450.
 

Webjet 

Record Revenues Push Stock Higher: Webjet Limited (ASX: WEB) posted stellar FY18 results with total revenue coming in 224% higher at $761.6 Mn compared to FY17. The company also reported higher TTV at $3.012 Bn, up 47% compared to FY17. Webjet declared the full year fully franked dividend of 20 cents, owing to strong earnings and a better outlook for FY19. Moreover, the company has seen an increased contribution from the ancillary products in FY18 driving sales across the entire product range. Further, Webjet has also witnessed higher organic bookings over the years with 4-year CAGR of 44%. Organic growth reveals the strong business model that the company is following over the years.

Organic Revenue Growth (Source: Company Report)

Stock Performance: The stock is currently trading at PE multiple of 46.03x which is significantly higher than the peers signaling that the company (with market cap of $1.99bn) might be overvalued at current levels. On the valuation front, Net Margin in FY18 has come down drastically at 5.4% compared to 25.9% in FY17, indicating the inefficiency of the company to translate their revenue into Profit. Return on Equity has also come lowest in five years at 12.6% compared to 28.6% in the previous year. Looking at the current financial metrics, we believe that the stock is overvalued and might correct in the near term. We, therefore, put an ‘Expensive’ recommendation on the stock at the current market price of $16.650.
 

 
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