Domino's Pizza Enterprises Limited

DMP Details

Domino's Pizza Enterprises Limited (ASX: DMP) is the largest pizza chain in Australia in terms of network store numbers and network sales and is the world’s largest franchisee for the Domino's Pizza brand.

Result Performance (FY21 Ended 30 June 2021)

• The revenue increased by 15.4% YoY to $2,199.1 million, supported by solid network sales growth. Network sales growth was reported at +14.6% (+18.8% in constant currency) and the online sales improved by 21.5% in FY21
• The underlying NPAT grew by 29.2% to $188.2 million. It was mentioned that the future of Domino’s – with the network planned to more than double by 2033 – is expected to be created in partnership with the present franchisees as well as store managers deploying towards their future.
• Full Year dividend increased by 45.4% to 173.5 cps.

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

On 9 December 2021, the company highlighted that Domino’s Japan has reached a significant milestone. With the opening of Domino’s Japan’s 862nd store, and the first in the Shimane prefecture, Domino’s Japan has now become the first pizza company with a national footprint, and is on track to achieve its 2000-store milestone by 2033.

FY22 Trading Update

In its annual general meeting presentation released on 3 November 2021, the company stated that DMP commenced FY22 with a year-to-date network sales growth of 8.0% (+4.3% on a same-store sales basis). The management expects to derive further improved efficiency at a store level, which would aid in customer value and increase unit sales and offset the impact of short-term inflation challenges.

Outlook

The company expects some inflationary headwinds including energy price increases (electricity and gas) in the CY 2022. Moreover, global food cost increases are expected in H2 FY 2022, although Domino’s long-term contracts would be able to provide some buffer. The company is having a busy new store pipeline and this year the company is aiming to open the record number of new stores.

Key Risks

The company is exposed to liquidity and market risks such as foreign currency, interest rate and commodity price, and credit risk. Also, the company is exposed to the risks related to the COVID-19 pandemic.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

DMP’s network is already more than 7% larger in this financial year (and 15% larger than this time last year), with the help of continued organic new store openings as well as acquisitions, including the opening of 66 new stores as well as the addition of 156 stores with the acquisition of Taiwan.

The stock has been valued using EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to peer average EV/Sales multiple (NTM basis) considering its store expansion plans, growth investments as well as decent outlook.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the current market price of $105.19 per share (Time: 4:19 PM (GMT +10), Sydney, Australia) on 19^th January 2022.

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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.