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Domino's Pizza – ‘new partnership’ announced twice it’s seemingly so excited by it, the market’s distinctly less so…

By Steve Moore | Friday 11 August 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Domino's Pizza Group (DOM) is seemingly so excited by its “new franchisee partnership” that it’s announced the news twice this morning. The market response is though distinctly less excited – the shares down around 4% at sub 270p…

The announcement is;
“The creation of a partnership with its largest franchisee in London. As part of the transaction Domino's Pizza Group has agreed to pay £24 million to have a 75% stake in a newly formed company whose assets will consist of all the franchisee's operations being 25 existing Domino's stores in London. The creation of the partnership will enable Domino's Pizza Group to take advantage of the significant growth opportunity in the London area. The transaction is subject to final contract, with completion expected in September 2017.”

Hmmm. The company opened the first Domino's store in the UK in 1985 and there's now around 1,000 here. Is there really now a “significant growth opportunity” in that usual backwater of “the London area”?!?

This also follows last month-announced half-year results – which included “the United Kingdom and Ireland operating in more mature markets with a sub-franchisee model and no corporate stores, and International whose markets are at an earlier stage of development and which operate predominately as corporate stores”. The results also saw a continuation of a share price slide since approaching 400p in March, with the company ‘acknowledging’ “that our UK consumers are currently more cautious about the economic outlook”.

So we have an out-of-model London area franchisee partnership at a time when “UK consumers are currently more cautious”. A combination which would see me not want to be a shareholder here at this juncture.

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