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Domino's Pizza - bet it wishes everyone ate pizza like they do in Iceland!

By Chris Bailey | Tuesday 7 August 2018


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.


A while back (as you can read here) I concluded you should wake me up at about a 250p Domino's Pizza (DOM) price. Well another day like today and the shares will crash through this level (and a bit more). So why is 'the official food of everything' having a 10%+ share price dump shocker today? I reckon there are three stories here.

The first is that with a 40%+ market share in the UK the inevitable is progressively happening: slower UK growth. There is no shocker going on but an 8% rise in profitability in the first half is just fine...but nothing more striking. Certainly a 14% online growth remains striking but the ticket growth was barely above zero and the poor old franchisees profitability was up just 5.3% with a guidance of big fat zero growth in H2 due to higher labour and food costs.

Perhaps we are now seeing why - cue the second key story - the deadwood press have been full of articles about the hard-nosed CEO hacking people off (including recently - allegedly - his own CFO, who resigned a handful of weeks back and the company is looking for a replacement). Saying that UK franchises are 'among the most profitable in the world' should not really be a boost - pride comes before a fall and all that.

And then there is the international push. Well I say 'international' but Switzerland, Germany and various Scandi countries is a strange old combination. The company noted that 'whilst our international businesses continue to make good progress with customers and sales, it has taken us some time to refine the operating model and cost base at store level, particularly in Norway'. I should coco as even its longer-term growth chart for international has only the Icelandic and German operations in profit. Iceland looks like a corking pizza market...but you cannot build a business on a market with a population of 338k people...

So still all the hope from digital, from a superior offering, from building out and franchising more internationally and leverage at x1.6 debt:ebitda is 'at the bottom of the range'. The trouble is with all the above angst and mixed development progress, why should you pay x16+ prospective EV/ebit and receive a 3% odd yield? My 250p level is centred on a more low teens earnings multiple sort of level and that's what I am sticking with.

In the meantime...where is my much-cheaper-than-Domino's fresh supermarket pizza? All this pizza chat has made me a bit peckish...


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