Domino's Pizza: Pushing for a bigger Asian presence

About the author:

Josephine (Jo) Little
Author name:
By Josephine (Jo) Little
Job title:
Former 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.

Event:

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).

Investment 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.

Price catalysts:

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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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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