Leading sector analyst Simon French at Cenkos has said that Nando’s is the most significant challenge to Domino Pizza’s market share of the home delivery market.
He said: “We see additional downside risk to the Domino’s Pizza share price as competition further increases in the UK home delivery market. We understand that both Pizza Express and Nando’s will accelerate plans to increase market share over the short-term. We view the latter as the most significant challenge; 36% of Domino’s customers eat at Nando’s. In fact Nando’s is the restaurant brand that Domino’s customers most over-index at, relative to the average GB consumer. Pizza Express meanwhile has established a trial with Just Eat alongside its existing agreement with Deliveroo.”
Domino’s last updated the market on 24 November alongside its Capital Markets Day when it increased the long-term potential UK store target to 1,600 (2016: c950).
French said: “At that point is said it continued to ‘trade well’ with no change to 2016 PBT guidance. Consensus forecasts are for £84.8m PBT and we forecast £84.4m. The market will focus on current trading and an update on cost pressures.
“Domino’s trades on a 2017E EV/EBITDA of 19.1x, a P/E of 26.0x and yields 2.3% for 3-year CAGR in EPS of 12.0%. Relative to Just Eat’s valuation and earnings trajectory we view this as expensive and therefore strongly reiterate our Sell recommendation.”
