Simon French of Panmure Gordon looks ahead to Domino’s Pizza’s H1 results on Tuesday (30 July), predicting profit growth in the UK but a widening of losses in Europe.
French reiterated his Sell recommendation and 380p Target Price and said: “We forecast 2% growth in underlying earnings to £22.5m PBT (11.3p EPS) reflecting growth in UK profits but wider losses in the European (ex UK) business.
“We do not expect the group to update on current trading but would expect like-for-like sales to be negative in H2 to date given the recent warm weather. We do not expect any change to consensus forecasts of £49.3m PBT (23.3p EPS).
“Our forecasts are modestly below consensus and on these the stock trades on a 2013E P/E of 26.7x and an EV/EBITDA of 19.1x. We forecast 4% EPS growth this year which cannot underpin that rating even in the light of the 18% EPS growth we forecast in 2014E.”
On Domino’s performance in the year to date, he pointed out that the UK business in Q2 was ahead of expectations, reporting 6.1% LFL sales growth. But French described the rate of new openings as “disappointing”, with 10 in Q2 against 13 in the same period last year.
“The small Republic of Ireland and Switzerland markets also performed well reporting 4.9% and 6.2% LFL sales growth respectively in Q2. However the group’s German expansion hit its first speed bump with corporate stores performing below expectations (albeit franchise stores are performing strongly).”
