DP Eurasia’s (DPEU’s) H118 trading statement highlighted the company’s progress in tapping the under-penetrated Russian and Turkish pizza markets. Online sales continue to grow as a proportion of system sales following app upgrades in 2017. High barriers to entry in the Russian market, coupled with challenging weather and traffic, have restricted geographic diversity. However, with 4.3x more stores in Turkey than the number two competitor, we believe the maturing base and the company’s expansion plans support market forecasts for strong annual EBITDA growth of 24% over the next three years.
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DP Eurasia |
Domino’s in Russia and Turkey
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Travel & leisure |
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18 July 2018 |
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DP Eurasia’s (DPEU’s) H118 trading statement highlighted the company’s progress in tapping the under-penetrated Russian and Turkish pizza markets. Online sales continue to grow as a proportion of system sales following app upgrades in 2017. High barriers to entry in the Russian market, coupled with challenging weather and traffic, have restricted geographic diversity. However, with 4.3x more stores in Turkey than the number two competitor, we believe the maturing base and the company’s expansion plans support market forecasts for strong annual EBITDA growth of 24% over the next three years.
H118 trading statement
Total system sales growth was strong at 28.1% and Russian like-for-like sales growth normalised at 18.0% (H117’s 31% resulted from early stage development), while Turkey also grew robustly at +10.9%. Online system sales growth of 64.5% was driven by app uptake in both markets, particularly Russia which displayed local currency growth of 88.6%. Leveraging the platform, online grew from c 50% to c 59% of delivery system sales but the Domino's UK figure of c 80% of total system sales indicates there is still upside potential. The current store mix is 37% corporate vs 63% franchised, with a medium-term equilibrium expectation of c 30:70.
Roll-out in core markets
DPEU is the current market leader in the Turkish market with 521 stores and a store opening target of 30 per annum. The Russian market is competitive, but rapid expansion in greater Moscow has established a store count lead over key competitor Dodo Pizza. The growth plan is underpinned by projected store roll-outs, and although Dodo is the larger brand in Russia overall, there are ample areas to go for. Weather and road congestion limit store catchment areas given DPEU’s strict 30-minute delivery standard. However, the total number of stores in Russia has grown at a CAGR of 74.7% since FY13, and the expanded commissary should support the operation for two to three years on projected openings rates.
Valuation: Realistic P/E and EBITDA growth
Consensus forecasts suggest the existing business, combined with a clearly defined strategy, will enable DPEU to deliver growing returns for shareholders. This statement confirms that the company is on course on an expansion path that should result in EBITDA CAGR of 24% from FY17 to FY20. That forecast growth results in P/E decreasing from 33.3x at FY18e to an unstretched 16.6x in FY20e.
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Consensus estimates
Source: DPEU, Bloomberg |
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