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. The company has the exclusive master franchise rights for Domino's brand and network across various countries, including Australia, New Zealand, Belgium, France, The Netherlands, Japan, Germany, Luxembourg, Denmark, and Taiwan.

Decent Performance in FY21 (For the Year Ended 30 June 2021)

• Network sales growth reported at +14.6% (+18.8% in constant currency), SSS increased 9.3%, and the online sales improved by 21.5% in FY21
• The revenue increased by 15.4% YoY to $2,199.1 million, supported by solid network sales growth and revenue expansion from corporate stores.
• The underlying NPAT grew by 29.2% to $188.2 million (Statutory growth +32.9%).
• Full Year dividend increased by 45.4% to 173.5 cps (70% franked).

Source: Company Reports, Analysis by Kalkine Group

Outlook

Amid new store openings and network sales growth, the company remains hopeful of delivering significant profit growth over the medium term. DMP's business has the track record, cash flow, and expanded debt facilities to execute its strategy. The management highlighted applying the growth strategies into Australia/New Zealand markets through Project Ignite. This multi-million program aims to develop its store network and place the company to meet the existing and future delivery demand. These investments provide confidence to improve its outlook for new store openings for the next 3-5 years to +9-12% from +7-9%. Further, the management increased its forecasts on net capex for the next 3-5 years to $100-150 million from $60-100 million due to its support to franchisees with store expansions. Apart from this, DMP also plans to enhance its digital offerings and invest in its online platforms.

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 ~-14.94% and ~+9.95%, respectively. The stock is trading lower than the average price of the 52-week low-high range at $83.57-$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 $102.44 per share as of 4^th February 2022 (Time: 1:44 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.

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