Simon French at Panmure Gordon expects Domino’s to report an increase in 2012E LFL sales of 4.1% when its issues its Q3 IMS on 26 September, based on 3% growth in H2 and the initial losses from the Domino’s Pizza Switzerland acquisition. He said: “The net result is a 0.3% decrease in current year PBT to £46.2m PBT (21.3p EPS) and a 0.5% increase in 2013E PBT to £52.3m (24.0p EPS). The stock trades on a 2012E P/E of c25x and an EV/EBITDA of c17.5x. “We roll our valuation year on to 2013E where we target a P/E of 15.0x that seems more appropriate for the 11-12% per annum earnings growth, which generates a target price of 360p (from 350p), which implies c33% potential downside. Sell. “We have increased our 2012E LFL sales assumption to 4.1%, based on 3.0% growth in H2 following 5.2% growth in H1. The group will issue its Q3 IMS on 26 September and faces a comparative of 3.9% from the prior year. We expect trading in July and August to have been in line with that reported in H1 with LFL sales up c5% reflecting a wet July and the benefit of the Olympics in August. However a warm and dry September so far is likely to have curtailed the rate of growth. “Domino’s recently announced the acquisition of Domino’s Pizza Switzerland for up to £4.7m of which £3.3m will be paid at the end of September, subject to the selling shareholders’ approval. In the short term the 12 existing stores will be run on a corporate basis and a view will be taken subsequently as to whether or not the franchise model is appropriate. Guidance is for a £0.5m loss from the Swiss business in 2012E with a positive contribution from 2014E. “The net result of the trading upgrade and the acquisition downgrade is a 0.3% decrease in current year PBT to £46.2m PBT (21.3p EPS) and a 0.5% increase in 2013E PBT to £52.3m (24.0p EPS). These forecasts are broadly in line with consensus expectations of £46.5m PBT (21.3p EPS) in 2012E and £52.0m PBT (24.3p EPS) in 2013E.”