Despite efforts to manage down expectations in the run up to these half-year results, the extent of the problems in the fledging German operation of Domino's Pizza (DOM) still took the market by surprise. The book value of the German operation, which still only generates €2.4m of sales, was written down by £11.8m. That sent reported profits crashing by nearly 50 per cent and sparked another sell-off.
However, there are other reasons for concern. Even after stripping out exceptional costs, the group's underlying operating profit was almost flat at £22.4m, despite the company's core UK market showing like-for-like sales growth for the half of 6.4 per cent, compared with 5.7 per cent in 2012. This suggests that cost pressures are inhibiting profits growth, with administrative charges alone rising by £4.2m to £17.2m. Meanwhile, the situation in Germany looks especially grim, with a planned minimum wage likely to raise the breakeven point of the existing Domino's outlets. The wage hasn't yet been rolled out nationally, either, further complicating Domino's planning. Management's plan now is to cut back on store openings in Germany, with the breakeven forecast for the existing business pushed back at least two years to 2016 or 2017.
Broker Cannacord Genuity forecasts pre-tax profits for 2013 of £49.2m, giving EPS of 22.5p (from £46.7m and 21.6p in 2012)
DOMINO'S PIZZA (DOM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 557p | MARKET VALUE: | £916m | |
| TOUCH: | 556-558p | 12-MONTH HIGH: | 710p | LOW: 483p |
| DIVIDEND YIELD: | 2.7% | PE RATIO: | 40 | |
| NET ASSET VALUE: | 42p* | NET DEBT: | 41% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012 | 113 | 21.5 | 9.67 | 6.6 |
| 2013 | 131 | 11.6 | 4.74 | 7.1 |
| % change | +16 | -46 | -51 | +8 |
Ex-div: 5 Aug Payment: 6 Sep *Includes intangible assets of £16.2m, or 10p a share | ||||
