Delivery is the byword for Domino’s, with successful affirmation in 2020 of a proven model in challenging conditions. With collection (21% of 2019 sales) hampered by COVID-19 restrictions, delivery stepped up with 24% top-line growth, driving a 7% rise in full-year like-for-like PBT. This is complemented by a new digital-led strategic plan (medium-term target of 20–40% higher system sales) and a commitment to return surplus cash to shareholders (£88m for 2020). Also, longstanding friction with franchisees, potentially a key obstacle to growth, is being actively addressed by management, itself revamped. Relatively unscathed in a COVID-19-bedevilled hospitality market, Domino’s appears fairly rated in terms of its long-term prospects.
Domino’s Pizza |
On the front foot
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Travel & Leisure |
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11 March 2021 |
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Delivery is the byword for Domino’s, with successful affirmation in 2020 of a proven model in challenging conditions. With collection (21% of 2019 sales) hampered by COVID-19 restrictions, delivery stepped up with 24% top-line growth, driving a 7% rise in full-year like-for-like PBT. This is complemented by a new digital-led strategic plan (medium-term target of 20–40% higher system sales) and a commitment to return surplus cash to shareholders (£88m for 2020). Also, longstanding friction with franchisees, potentially a key obstacle to growth, is being actively addressed by management, itself revamped. Relatively unscathed in a COVID-19-bedevilled hospitality market, Domino’s appears fairly rated in terms of its long-term prospects.
Adapting well
It is to management’s credit that the loss in 2020 of over a third of its higher-margin collection business and menu rationalisation owing to COVID-19 measures and ensuring store colleagues’ safety did not prevent a marginal rise in UK and Ireland EBIT, adjusted for net COVID-19 impacts (£9m costs less £3.6m VAT benefit) and £2.2m IFRS 16. Delivery, ordinarily c 80% of company revenue, remained open throughout the period, growing sales from a pre-pandemic norm of 4% in Q1 to a bumper c 25% in the rest of the year. Digital was predictably a spur with full-year UK online sales up by 24% (twice the rate of total system sales), boosted by the app (4.3m downloads and over five million new customers). By contrast, trading at Domino’s directly operated stores in the London area was subdued owing to reduced footfall.
Moving on
The coincidence of new management with a changed environment post COVID-19 should serve Domino’s well as the ‘strategic transformation’ is well in hand. This includes the launch of digital platforms to accelerate delivery (typically, from 25 to under 20 minutes) and CRM, enhancement of collection, menu innovation (more healthy, vegan), value offerings and scale efficiencies for the benefit of the company and franchisees. The goal is to expand annual system sales from £1.35bn to £1.6–1.9bn over the medium term, accompanied by 200 store openings (c 1200 at present). Evidently an optimum relationship with franchisees will be required.
Well cooked
Despite pandemic uncertainty a strong start to 2021 and expected lower COVID-19 costs should underpin market forecasts of flat profits. However, a premium price rating may deter investors until evidence of strategic plan paying off.
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Consensus estimates (excluding discontinued international operations)
Source: Refinitiv. Note: *Adoption of IFRS 16 decreases revenue by £25.4m and benefits EBITDA by £7.9m and EPS by 0.1p. |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: TMT
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