Domino's Pizza Enterprises Limited (DMP)
HOLD

Still needs more time in the oven

 23 Aug 2023
Sector: Consumer Discretionary

RESULTS ANALYSIS

Need To Know

  • Soft result. Franchisee profit and same store sales growth remain weak albeit improving.
  • Cost and balance sheet improvements likely to excite the market
  • Expect the share price will remain volatile until franchisee profitability improves

Result overview:

EBITDA A$347m vs A$346m consensus

EBIT A$201.7m vs A$207m consensus

EPS A$1.39 vs A$1.43 consensus

DPS A$1.10 vs A$1.15 consensus

Investment Implications

Sales trends appear to be improving in both Aus/NZ and Europe, Asia is still weak. Same store sales growth improved to 6.6% from its July trading update (-0.2% yoy). The company is starting to outline clear decisive actions for its cost and balance sheet position, which we think is necessary for the group to obtain organic growth.

Franchisee profitability remains weak. Franchisee profitability was $93,500 per store for 12 months to March 2023, down from $110,000 pre pandemic. FY24 capex guidance is expected to be at the low end of its $100-150m target range. 

Whilst the result is weaker than market expectations, we expect the market will look through this and focus on the cost and balance sheet discussion. Franchisee profitability is still well below where it needs to be and we expect it will remain the determining feature that will hold DMP's share price back in the longer term. 

DMP downgraded its 3-5 year new store additions guidance from 8-10% down to 7-9% on expectations of weaker European rollout. 

Investment View

Dominos remains at a ~7pt discount to its long term average PER (35x), we believe the market is unlikely to drive a significant re-rate in the multiple until there is a clearer indication of franchisee multiples normalising and costs coming down.  

We re-iterate our Hold rating.

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Stock Overview

Share Price

Company Overview

DMP is a pizza business that is engaged in the operation of retail food outlets and franchise services. The Company operates through three segments: Australia/New Zealand, Europe and Japan.

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