DMP Details

Domino's Pizza Enterprises Limited (ASX: DMP) is the largest pizza chain in Australia with respect to network store numbers and network sales and is the world’s largest franchisee for the Domino's Pizza brand. The company has the exclusive master franchise rights for the Domino's brand and network across various countries that include Australia, New Zealand, Belgium, France, The Netherlands, Japan, Germany, Luxembourg, Denmark, and Taiwan.

Decent Performance in H1FY22 (For the Period Ended 2 January 2022)

• The revenue from continuing operations 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 decline in earnings in H1FY22 than the prior comparable period is primarily attributed to investments in Project Ignite (ANZ) and a rebasing of sales in Japan in Q2.
• The company and its franchisees added +285 stores in H1FY22 (+156 acquired in Taiwan, +129 organic).
• The interim dividend franked at 70% stood at 88.4 cents per share and was approved by the Board of Directors on 22 February 2022.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Store Expansion Plan on Track

Recently, the company has opened 900^th store in Japan, the first market to reach the milestone, just nine months after opening the Company’s 800^th store. Domino’s Japan remains track to open its 1000^th store in FY23 and its long-term target of 2000 stores.

Aims to Further Deepen Its Digital Presence

The company has incurred digital CAPEX of $21.0 million in H1FY22 towards investment in online digital platforms. DMP intends to further leverage its global digital platform investment across all its markets by investing in digital platforms, comprising the next generation website, and native ordering application, which will launch in Q4FY22. Both the portals will enhance customer experience as the portals will be significantly faster and easier to use, which will enable a more rewarding, tailored experience for each customer, with higher conversion rates.

Key Metrics

The company’s EBITDA margin and ROE grew sharply in FY21 over FY20. However, the company’s current ratio reduced to 0.84x in FY21 from 0.98x in FY20, while it slightly improved from 0.82x in FY17.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 68.79% of the total shareholding while the top four constitute the maximum holding.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The group is exposed to liquidity risk as well as market risk such as foreign currency, interest rate and commodity price risk, and credit risk. The Group’s activities expose the company mainly to the Euro and Japanese Yen currencies and to the interest rate risk that arises by its borrowings.

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 that SSS for FY22 would be slightly below the 3–5-year outlook.

Notably, the pipeline of new store openings stays robust, with the group going as per plan to augment its network by +500 stores during FY22 (including Taiwan acquisition). The net CAPEX outlook for 3-5 year remains unchanged at $100-150 million driven by its investments in franchisees towards store expansion and in future digital technologies and initiatives.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (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 peer average EV/Sales multiple (NTM basis) considering its store expansion plans, and growth investments in future digital technologies and initiatives.

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.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $79.650 per share, down by 0.188% on 13^th April 2022.

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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