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 stood at $1,206.6 million, up 10.2% YoY, mainly due to an increase in Same-Store Sales growth of 2.75% and continued new store openings of 129 for the period.
• Cash from operating activities stood at $92.8 million in H1FY22 versus $161.8 million in H1FY21, primarily due to unfavourable working capital of $57.2 million, because of the timing of payments.
• EBITDA stood at $212.8 million in H1FY22, down 2.5% YoY, and EBIT stood at $144.7 million in H1FY22, down 5.7% YoY.

Source: Company Reports, Analysis by Kalkine Group

Key Update

• On 17 May 2022, the company announced that it would host Asia Investor Day on 6 June 2022.

Outlook

The company will continue to invest in its future, with a Net CAPEX of $100-150 million for store expansion and strategic digital technologies and initiatives. Further, it plans Same Store Sales Growth to be between 3-6% and new organic store additions to be between 9-12% of the network in 3-5 years. Moreover, the company will actively look for suitable acquisitions through its One Brand, One Focus strategy.

• Europe milestone 3,050 stores by 2033 (Europe 2.3x current market size)
• ANZ store target 1,200 by 2025-2028 (ANZ 1.4x current market size)
• Asia milestone 2,400 stores by 2033 (Asia 2.3x current market size)
• Group milestone 6,650 stores by 2033 (Group 2.1x current market size)

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 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 the peer average EV/Sales multiple (NTM) (Peer Average), considering its store expansion plans, growth investments, digital offerings, and decent liquidity.

Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of $68.83 per share, down 3.0556% as of 31 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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.