Domino’s Pizza Group PLC

Domino’s Pizza Group PLC (LON: DOM) is a FTSE 250 listed pizza brand that owns, operates and franchises Domino's stores in the UK and the Republic of Ireland.

Investment Rationale for Valuation – HOLD at GBX 369.40

• Solid Momentum: Dominos demonstrated excellent sales momentum and shown order growth as restrictions have been lifted.
• Good Progress on Strategic Objectives: It disposed of its Switzerland operations, opened five new stores during Q3 FY21, and completed its share buyback programme.
• Strong Capital Allocation: In FY21, the Company plans to distribute £136 million of surplus capital to shareholders via dividends and share buybacks.
• Technical Indicator: From a technical standpoint, DOM’s stock price is hovering close to the lower Bollinger band, while the 14-day RSI (~32.45) is reiterating the oversold position.
• Undervalued Multiples: On a forward 12-month basis, valuation metrics – EV/Sales, EV/EBITDA, and Price/Earnings are quite undervalued against the Consumer Cyclicals sector.

Key Risks

• Covid-19 Pandemic: The mutation of the Delta variant of coronavirus posing a threat to the economic recovery, as the cases are rising again in the UK.
• Value Added Tax: DOM expects that the changes to the rate of VAT will impact its system sales growth in H2 FY21.
• Macroeconomic Uncertainty: The rising cost of living with inflationary concerns has impacted British consumer confidence. Moreover, increasing payroll numbers can encourage the Bank of England towards a first post-pandemic interest rate hike.

Q3 FY21 Trading Update (for the 13 weeks ended 26 September 2021, as of 14 October 2021)

 (Source: Company Website) 

• Strong Trading Momentum: During Q3 FY21, DOM reported a 9.9% year-on-year increase in systems sales, while the total orders grew 9.5% year-on-year.
• Store Reopening: DOM opened 18 new stores year till date and remained on track to open up to 30 new stores in FY21.
• Share Repurchase: The Company has completed £45 million of share buyback programme and commenced the incremental £35 million programme.

Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

Domino’s sustained its strong sales momentum and shown resilience against the well-publicized pressures on food cost inflation and labour availability. It shall be able to adapt to the changing market dynamics and perform in line with the market expectations. It is well-placed to gear up for the peak trading period and create sustainable value for its shareholders. The stock made a 52-week high and low of GBX 443.68 and GBX 301.40, respectively.

Based on the solid sales growth, strong order count, progress on strategic objectives, and favourable valuation using the above method, we have given a “HOLD” recommendation on Domino’s Pizza Group PLC at the current market price of GBX 369.40 (as on 22 October 2021, at 8:30 AM GMT+1), while we look forward to reinvesting once the short-term uncertainties pertinent to input inflation and supply chain crunch subsides. 

Numis Corporation PLC

Numis Corporation PLC (LON: NUM) is a FTSE AIM UK 50 index listed independent institutional stockbroker and corporate advisor.

On 8 December 2021, Numis expects to release final results for FY21.

Rationale for Valuation – SPECULATIVE BUY at GBX 352.00

• Continuous Growth: Given the favourable market backdrop, the Group has increased its capital allocation and delivered growth in top-line and bottom-line items.
• Bright Prospects: Numis’ pipeline also remained robust, and the wider market outlook is positive. It also expects to launch several IPOs in FY22, and continuing progress on its strategic priorities.
• Economic Recovery: The UK inflation growth has slowed down in September 2021, while the economy has bounced back in Q2 2021, reflecting a sign of recovery as the global economy reopens.
• Technical Indicator: From a technical standpoint, the current market price is trading above the 20-day EMA (GBX 353.00), reflecting a bullish price momentum.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, and Price/Cash Flow valuation multiples of Numis are undervalued against the Investment Banking & Investment Services sector.

Key Risks

• Macroeconomic Risk: The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets. Moreover, the strengthening of the US Dollar with an increase in US Treasury Yields can hinder the NUM’s growth prospects.
• Market Risk: The Company is also exposed to market risk with high volatility in equity market, and loss of clients with subdued investors’ sentiments.

Trading Update (for the year ending 30 September 2021, as on 30 September 2021)

• Good Momentum: Numis delivered a strong performance in Q4 FY21 and maintained its positive momentum.
• Revenue Expectation: Revenue for H2 FY21 is expected to be higher than H2 FY20, reflecting a significant volume of COVID related capital markets transactions.
• Guidance: FY21 revenue is expected to be around £215 million (FY20: £154.9 million), and thus, profits are expected to be higher than FY20.

Share Price Chart (since 02 February 2021)

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

During FY21, revenues from Investment Banking division grew considerably to £150 million in FY21 (FY20: £101.7 million). Moreover, the M&A and private markets transactions contributed significant revenue and market share gains. It also experienced market share gains, resilient research payments, and good activity levels in UK equities. In a nutshell, FY21 remained an excellent year for Numis, and it well-positioned to generate incremental shareholders’ value. The stock made a 52 week High and Low of GBX 419.86 and GBX 286.00, respectively. 

Based on robust revenue growth, strong profit generation, significant progress on strategic priorities, favorable market dynamics, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Numis Corporation PLC at the current market price of around GBX 352.00 (as on 22 October 2021, at 9:04 AM GMT+1), with lower double-digit upside potential based 9.25x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

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

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.