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Domino's hit by snowdown

RESULT: Snow has made for a slow start to a potentially tough year for Domino's Pizza and a sky-high rating is becoming increasingly hard to justify given the headwinds the company faces
February 25, 2013

Heavy snow fall in January made it a relatively slow start to the year for Domino's Pizza. Like-for-like sales nudged ahead 1.6 per cent in the first seven weeks of 2013, although without the weather this would have been 2.6 per cent. That compares with like-for-like growth of 5 per cent last year, and helped drive underlying EPS up 13.8 per cent to 22.2p.

IC TIP: Sell at 530p

The group plans to increase advertising spending this year and improve its marketing initiatives to support growth in its 612 mature stores. However, as set out in our sell tip (520p, 17 Jan 2013) growth rates have been slowing as like-for-like growth has become harder to achieve.

The major long-term opportunity is now in Europe, where Domino's UK has the master franchise licence for both Germany and Switzerland. Progress has been very encouraging and investment in rolling out the business will be accelerated, although broker Canaccord forecasts start-up losses there until 2015-16, albeit at a declining level from here. Without the drag of losses in Europe, profits would have been 14.2 per cent higher at £49.7m last year.

Broker Numis forecasts 2013 pre-tax profits of £50.5m and EPS of 23.8p (from £46.7m and 22p in 2012).

Domino's Pizza (DOM)
ORD PRICE:531pMARKET VALUE:£868m
TOUCH:530-531p12-MONTH HIGH:567pLOW: 417p
DIVIDEND YIELD:2.7%PE RATIO:28
NET ASSET VALUE:42pNET DEBT:39%

Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
200813622.110.15.9
200915541.021.57.8
201018845.215.410.2
201121038.816.712.3
201224142.419.014.5
% change+15+9+14+18

Ex-div: 13 Mar

Payment: 12 Apr