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Forget uncertainty, we insist you eat more pizza says Domino's, but buy the shares?

By Chris Bailey | Wednesday 11 October 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.

Clearly it goes without saying that if you want a quality pizza in London then you should be going to Wedge Issue rather than to your local Domino's (DOM), but it is to the latter's Q3 trading update we must turn, which is a bit of a headscratcher.

Yes, after a shabby interim update the Q3 statement reads a lot better, with 6.2% like for like sales growth in the UK and 'system sales' up 11.6% and other geographies (Ireland, Sweden, Switzerland, Iceland, Norway) collectively doing a little better than even this.

Listening to the conference call, the group CEO David Wild rhapsodised about everything from GPS technology, to 'carry out' bargains and how gaps in its North London coverage was a decent opportunity. It expects to 'launch a record 90 stores in the UK this year, with an encouraging pipeline already in place for openings in early 2018', whilst the rate of Papa John's openings is declining and Pizza Hut is apparently on a net basis shutting shops.

Well bully for Domino's and its 1000+ outlets and (apparently) 200,000 digital orders fulfilled on 29th September. Its new advertising 'The Official Food of Everything' seems to be brainwashing consumers to get out their money or their bank cards despite the 'uncertain consumer environment'. Well we all know that the rise and rise of the convenience society means the correlation with earnings, money in the bank or even value is desperately mixed up.

After some tough comps hurt perceptions towards the company's first half results, the shares are up over 10% as I write and pushing closer to 350p. That's a lot better than a cold pizza delivered by a minimum wage drone to your doorstep twenty minutes after you expected it. So if you are enjoying all the above - or smart enough to have jumped in after the half year results debacle - then good on you. Even Domino's management admitted the pattern of this year with a shabby first half and a good third quarter is hard to pin down.

Certainly you could hear the pro analysts on the call 'doing the math' and thinking about those nice easy comps for the first half of 2018 to rub up against and extrapolating that rigour exhibited in Q3. Hence the share uplift and - no doubt to follow - the love-up brokerage notes.

In the real world though I always look at profit and cash flow generation and I had my buy ticket all ready at 250p which we did not get to and the thick end of a quid higher I am not playing and if I had the stock I would sell it here. Yes, chat on the call about continued hopes for 5% like-for-like growth is in the retail space catnip-esque but you are paying up for it...and the brainwashing adverts might not always work. Oh...and one day people might notice that your favourite supermarket offers a similar quality at a lower price point. All you have to do is buy it and bung it in the oven. That's my value investing take on the convenience society.

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