What are MM’s thoughts on Domino Pizza?

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 21/05/2022

What are MM’s thoughts on Domino Pizza?

Thanks for taking my question! Best regards, DMP (Domino Pizza) share has dropped from a high of $167 Sept 21 to current price of below $70. This, I believe, is due to market concerns of food inflation along with rising energy and labour costs, which affects the food industry in general. However, due to an acceleration in carryout sales and due to DMP’s size and market coverage it should be less exposed versus peers. Would like you discuss the short to medium prospects of DMP.

Answer

Hi Peter,

We have struggled in recent times to become enthused with DMP given their slowing growth profile. In years gone by they were growing sales at ~20-30% pa however they are now growing at 10-15% pa and are expected to drop below 10% by 2025. In other words, it’s a maturing business where growth is slowing hence the earnings multiple the market pays should also be lower. Overlay that with today’s new rising bond yield environment which has led to a painful de-rating of growth stocks.

However, after more than halving from its lofty highs in September 2021, the company now operates ~3200 stores globally and has plans to double that in 10 years. They are reasonably well positioned to execute those plans assisted by a solid balance sheet. The stock trades on a forward PE of 30x and looks fair value around $70 medium term, but obviously its important to monitor how well management delivers on its expansion plans. We prefer Aristocrat (ALL) as a better priced growth opportunity.

chart

Domino’s Pizza Enterprises (DMP)

LAST UPDATED 20/05/2022 16:13

Latest Reports

Afternoon report 23/04/2024

The Match Out: Gold and Oil left behind again, Equities tick higher

Investors continued the 180-degree about-face from last week's sentiment, happy to take on risk for the second consecutive day to start this week seeing the ASX200 through a 200pt gain from Friday’s panic lows early in today’s session. Tech was the standout as US 2yr yields retreated (marginally) from the spike above 5% last week while Healthcare and Financials also joined in the rebound. Energy and Gold were the main areas finding it tough again today, for the same geopolitical reasons as Monday’s session.

Morning report 23/04/2024

What Matters Today: Are Macquarie & now Citi correct that the banks are a sell?

On Monday, Citi joined Macquarie with a “sell call” on the major banks, which saw the sector reverse early gains to close near their intra-day lows, ANZ even slipped into negative territory. There were two major reasons behind their bearish stance: • Citi believes the valuations of the banks are stretched considering the potential political “attacks on their profits”, i.e. when the RBA starts cutting, they will be forced to follow suit at the expense of profitability. • Macquarie said to “sell” the banks in mid-March as the sector posted new highs, again a call on valuation grounds; good timing so far! The cornerstone of Citi's argument is valuation, which could be applied to the whole market when the ASX200 is challenging new all-time highs. Overall, it is an understandable view, but we question if it's a good enough reason to exit the sector, forgoing enticing dividends and potentially incurring capital gains issues after the “Big Four” have run so hard.