The ramping up of Domino’s Pizza’s expansion plans in Germany would be material to the company’s long-term growth prospects, according to a leading analyst. Lance Batchelor, the group chief executive designate, is reported as saying that Germany could eventually support 2,000-3,000 stores, twice as many as the UK. Douglas Jack said that with this operational gearing, the impact of stepping up the potential target in Germany from 400-800 to 2,000-3,000 stores would be material to long-term growth prospects. Domino's Germany is at trial and test stage, with four company-owned stores open and at least one more expected to open in December. Jack said that he expects a second commissary (Eu1m cost) to be built to reflect planned expansion. Jack said: “A target of 2,000-3,000 stores in Germany would be based on applying the same store/household density as the UK. The current UK target of 1,200 stores equates to an average of 20,000 households per delivery area. A larger German store target would imply material upside over the long-term due to high operational gearing. “In the UK, Domino’s made: £4.6m PBT from c.250 stores in 2002; is forecast to make c.£42m PBT from c.690 stores in 2011E; and c.£150m PBT from c.1,200 stores in 2020E (incurring no debt and returning another £680m to shareholders over the next 10 years to 2020E). “The £150m PBT target for the UK requires the average delivery ticket to rise from £18.53 to £21.00 and average order frequency to increase from 34.2 days to 32.5 days.” Management intends to expand in Germany through opening company-owned stores for 2-3 years. Jack said: “At that point, it should sell these stores to franchisees (there is already a big waiting list), who should immediately start expanding. At this point, Germany should become cash generative and start contributing to group profits. “In our view, the share price should start to reflect Germany’s incremental cash flow and profits by the time the model switches into franchisee-led profit growth. Based on the UK’s results, DCF analysis indicates an initial incremental value of c.70p/share (based on 400 stores over 10 years), which is likely to increase if long-term growth targets are raised.”