Domino's Pizza: Pushing for a bigger Asian presence
About the author:
- Author name:
- By Josephine (Jo) Little
- Job title:
- Senior Analyst
- Date posted:
- 15 June 2021, 4:00 PM
- Sectors Covered:
- Consumer Discretionary (Retail)
- Domino's Pizza Enterprises (ASX:DMP) is set to acquire the Domino’s Pizza master franchise in Taiwan.
- While relatively small in size compared to the broader DMP global business, we see the move as DMP’s first push outside of Japan on its way to building a larger Asian business.
- The playbook for Taiwan will be similar to DMP’s other regional acquisitions – build sales velocity and stores/scale. Proximity to Japan will allow for sharing of marketing/operational functions to potentially turbo-charge growth.
- Following a strong re-rate in recent months and c45x FY22F PE, we lower our rating to Hold. However we continue to view this global growth story favourably.
Domino's Pizza Enterprises (ASX:DMP) will acquire 100% of Domino’s Taiwan for ~A$79m (cash/debt free basis). Funded via existed cash/debt facilities, the transaction is expected to complete in 1H22.
Domino’s Taiwan operates from 157 stores (138/19 franchise/corporate) and is the second largest pizza chain in this country (behind Pizza Hut with 258 stores).
Forecast and valuation update:
Our EPS forecasts increase by 0.7%/1.3% in FY22/23 and more like 4% in FY24/25.
Our DCF/PE valuation increases (Login to view).
DMP has enjoyed a strong re-rate in recent months, with the stock now trading within 5% of our new PT. With only modest yield support (c1.6% FY22F), the total shareholder return on offer is <10% and we therefore lower our rating to Hold.
We believe DMP is as well placed as it has been in some time and remain attracted to the group’s LT opportunity via store rollout/scale benefits, strong SSS growth trends and potential further M&A in Asia and Europe.
FY21 result (August 2021): we forecast a strong year of growth, EBIT +31.6% (+32.4%/+30.8% 1H/2H) with Japan the largest growth driver given its extremely strong 1H.
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