The UK home delivery market is becoming increasingly crowded which is likely to make it more difficult for the market leader, Domino’s Pizza, to maintain historic levels of growth, according to leading analyst Simon French at Cenkos.
He said: “Competition from aggregators Just Eat and Hungry House combined with operators Papa John’s and Pizza Express (shortly to open a delivery only unit in Cambridge) plus potential new entrants in the form of Burger King, McDonalds and Ubereats all threaten to derail forecasts and are not adequately reflected in the P/E of 23.3x to December 2016.”
French said that Domino’s has not updated the market since the end of February and is currently lapping tough comparatives partly boosted by last year’s football World Cup.
He said: “We cannot recall a period of such intense activity in the home delivery market with significantly upweighted marketing by established players and a host of new entrants such as Deliveroo. The H1 results will provide the first opportunity for new CFO Paul Doughty to present to the market and he will need to address concerns around competition, new store growth and the German recovery plan.
“The stock’s premium rating of 23.3x P/E reflects a dependable track record of earnings growth and high returns from its low capital employed franchise model. What it doesn’t reflect is record levels of competition in the UK, a relatively new management team, unresolved operational issues in Germany and changing consumer trends. Whilst the stock trades at a significant discount to JustEat (not covered) on 47.7x it does not offer that global growth opportunity, Sell.”
