Domino's Pizza Enterprises Limited

DMP Details

Domino's Pizza Enterprises Limited (ASX: DMP) operates quick-service restaurants and owns licensing of fast-food retailing. It operates through segments, namely, Australia/New Zealand (ANZ), Europe and Japan. DMP was listed in ASX on May 16, 2005.

Material Business Updates: As announced on December 9, 2021, DMP now operates stores covering all the 47 prefectures in Japan. With the opening of the 862^nd store in Japan, Domino’s Japan becomes the first pizza company with a national footprint. DMP intended to reach the 2000-store mark by 2033. On 26^th November 2021, DMP announced the change in shareholdings of Bennelong Funds Management Group Pty Ltd from 6.7169% to 7.7744%.

Recap on Full-year Results and Trading Update:

• DMP added over 285 stores in FY21 with 129+ in EU, 126+ in ANZ and 30+ in Japan region. The total store count stood at 2,949 in FY21.
• Its Japan business clocked an organic new store sales growth of ~18.7% on pcp in FY21. Overall, DMP posted revenue growth of 15.4% YoY to reach $2.199 billion in FY21.
• Online sales topped 21.5% growth, while network sales grew 14.6% over PcP.
• Wider sales growth across regions lifted EBIT with a 27.2% uptick on pcp. This is despite increased spending on incentives, technology, insurance and ESG.
• The company is committed to achieve a net-zero emission before 2050.
• For YTD till Q1FY22, DMP posted strong momentum with 8% higher network sales and opened 222 new stores. However, with lockdown restrictions, DMP witnessed uneven sales across geographies.

EPS Trend (Source: Analysis by Kalkine Group)

Key Risks: Increase in the spread of the new virus variant may distort store rollout plans and affect the store traffic. Supply chain disruptions may inflate the input costs and compress the margins. Changing customer preferences and rising unemployment rates in Australia may alter discretionary spending habits.

Outlook: The company’s OneDigital ordering experience is in the advanced stage. DMP is expecting its online sales to outpace the network sales after the rollout of the digital ordering platform. The company reaffirmed its 3–5-year outlook with +3-6% same-store sales growth and +9-12% growth via new store openings. It is expecting a net capex of $100-150 million. It had commenced Project Ignite in ANZ to accelerate store opening plans. This may increase operating expenses by $10-12 million in FY22.

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

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has been corrected by ~28.40% and is trading below to the average of the 52-week low-high band of $81.20-167.15, providing an accumulation opportunity. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight premium to its peers, considering the opening of 222 stores during YTD ending September 2021 and healthy top-line growth in Q1FY22, etc. For the valuation purpose, peers such as Collins Foods Ltd. (ASX: CKF), Corporate Travel Management Ltd. (ASX: CTD), Aristocrat Leisure Ltd. (ASX: ALL), and others have been considered. Considering its store expansion plans, digital investments, 3–5-year growth targets, healthy FY21 performance, potential upside as indicated by the valuation, and current trading level, we give a “Buy” rating on the stock at the current market price of $117.38, as on 15 December 2021, 12.50 PM (GMT+10), Sydney, Eastern Australia.

DMP Daily Technical Chart, Data 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.

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

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