Domino's Pizza Enterprises Limited

DMP Details

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

Result Performance for the Half-year Ended 2 January 2022 – (H1FY22)

• The revenue increased to $1,206.6 million in H1FY22 from $1,095.1 million in H1FY21, mainly due to a rise in Same-Store Sales (SSS) growth of 2.75% and continued new store openings of 129 for the period.
• The statutory profit after tax stood at $94.1 million, down 6.3% YoY, including a loss of $2.2 million after-tax adjusted as significant items. Removing these items, the underlying profit after tax stood at $96.2 million, down 4.9% YoY.
• The company and its franchisees added +285 stores in H1FY22 (+156 acquired in Taiwan, +129 organic), and is on track for a ~500 store expansion in FY22.
• The interim dividend franked at 70% stood at 88.4 cents per share approved by the Board of Directors on 22 February 2022.

Source: Company Reports, Analysis by Kalkine Group

Outlook

The company reported a positive start to H2FY22, with Network Sales +6.0% higher (+1.7% on a same-store sales basis). The company anticipates SSS for FY22 would be slightly below the 3-5 year outlook. Further, it plans to roll out initiatives in FY22, including the latest customer-facing ordering app and a team member facing program to deliver career-building skills. Also, it plans to grow the delivery team by offering real jobs with long-term opportunities, including franchising.

Key Risks

The company is exposed to liquidity and market risks such as foreign currency, interest rate and commodity price, and credit risk. The company's activities expose the company mainly to the Euro and Japanese Yen currencies and the interest rate risk that arises from its borrowings. The group enters derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks.

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

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 6-month and one-year return of ~-40.87% and ~-9.97%, respectively. The stock is trading lower than the average price of the 52-week low-high range at $83.25 - $167.15.

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) (Peer Average), considering its store expansion plans, growth investments, digital offerings, and decent liquidity position.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $83.43 per share as of 23^rd February 2022 (Time: 12:54 PM (GMT+10), Sydney, Australia).

Domino's Pizza Enterprises Limited (DMP) is a part of Kalkine’s Global Big Money Product

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.