Domino’s Pizza UK & Ireland should highlight levers to grow like-for-like sales in the UK and create value in Germany when it reports its first half results next month (23 July), according to leading analyst Douglas Jack at Numis. Under a note entitled “Resuming the upgrade cycle”, Jack forecast that the delivery chain’s pre-tax profit would grow by 10% to £22.2m in H1, He said: “(This is) consistent with our forecast growth for the full year, but believe the company should exceed both our and consensus forecasts, leading to upgrades. He said: “UK earnings grew by 19% in 2011. By its own high standards this was a poor year for Domino's, held back by a VAT rise, a 12% LFL sales comparative and start-up costs in Germany. We estimate that 15% of this 19% growth was not dependent on LFL sales. “Growth prospects are now much stronger. In addition to extending the usual competitive advantages, Domino's sales in 2012E should benefit from: last year's new stores achieving sales that are 20% above the historic average; a strong performance from new products (especially stuffed crust); having to pass on only 0-1% cost inflation; commencing 1:1 smart marketing; and advertising gravitating towards e:commerce.” Jack said that over the last 10 years, a 255% increase in the number of stores and a 439% increase in system sales have converted into an 1174% increase in EBIT and a 1319% increase in PBT, during which debt has remained minimal even though £118m has been returned to shareholders. He said: :For the UK alone, we forecast PBT growing to £147m over the next nine years during which c.£600m should be returned to shareholders. Only a quarter of the implied 17.5% earnings CAGR is reliant on LFL sales growth of 3% pa. 60% stems from increasing the size of the estate to 1,200 stores from 720; and 15% is from commissary gross margins rising by 48bps pa (historical average: 111bps pa).” Jack said he believed the group’s share price places no value on Germany, where he said it was making “good progress”. He said: “German losses should narrow in 2013E; self-financed PBT growth should commence in 2015E. Based on DCF, Germany could be worth 63p/share. “Our 12-month target price is 600p, valuing the company on a PEG of 1.1x (in line with the FTSE All share). This is based on likely (c.20% annual growth) rather than official forecast growth for a company with minimal debt and very high returns. We expect greater appreciation of the company’s earnings quality, ability to boost LFL sales and Germany’s potential to drive the shares higher at the H1 results.”