Domino's Pizza Enterprises Limited

DMP Details

H1FY21 Performance Update: Domino's Pizza Enterprises Limited (ASX: DMP) operates retail food outlets. The market capitalization of the company as of 2 June 2021 stood at ~$9.69 billion. During the period, global food sales increased by $260.8 million to $1.84 billion up 16.5% YoY, and up 8.5% on the same store sales basis. In addition, reported EBITDA of $218.7 million, up 23.8%. The performance reflects the benefits from investing in, and strengthening, the franchisee base and expanding store footprint on a global scale. It opened 131 organic new stores, 5.0% of the network, with significant contributions from Japan (+68 new stores), France (+19 new stores), and Germany (+15 stores). Importantly, franchisee profitability remains strong, up 20.8% across the group, and at records in multiple markets. Moreover, net profit after tax grew by 41.1% YoY to $100.2 million.

Key Data (Source: Company Reports)

Outlook: On the back of decent H2FY21, where network sales up 20.9% YoY (+10.1% on a Same Store Sales basis), the company continues to expand further. The company’s agile response to changing environment has supported expectations for FY21 to be even higher than the already positive, medium-term outlook. Importantly, driven by a sound balance sheet and franchisee profitability, the company intends to accelerate expansion.

Key Risks: As per the management, one of the business risks to operations is the possibility to spread the Covid-19 infection between stores. This spread could be either through team members and/or sellers working between multiple stores or via training events.

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation: The stock posted 6-months and 1-year returns of ~+39.33% and ~+82.72%, respectively. It is currently trading above the average 52-week high price of $115.970 and the 52-week low price of $60.540. We have valued the stock using the P/E multiple based illustrative relative valuation method and target price with a correction of low double-digit (in percentage terms). We believe that the stock might trade at a discount as compared to its peer average P/E (NTM trading multiple) considering ongoing efforts of franchisees and team members across nine countries to prioritize the safety and wellbeing of customers, team members, and the community at a differentiated cost. For this purpose, we have taken peers such as Crown Resorts Ltd (CWN.AX), Corporate Travel Management Ltd (CTD.AX), Woolworths Group Ltd (WOW.AX), to name a few. Considering the key investment risks in the franchisee business, valuation, and current trading levels, we suggest investors to book profit and wait for a better entry level. Hence, we give a “Sell” recommendation on the stock at the current market price of $114.180, up 1.946% as of June 2, 2021.

Daily Technical Price Chart

Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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