Peel Hunt expects Domino’s Pizza to lift life-for-like sales, expansion and share buy-back guidance

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Peel Hunt expects Domino’s Pizza Group PLC (LON:DOM) to raise its life-for-like sales, expansion and share buy-back guidance when the pizza chain announces its interim results in August.


“We expect Domino’s to keep LFL sales growth above 15% in Q2, with franchisees at record levels of profitability and returns (c.100%),” said Peel Hunt analyst Douglas Jack.


“Such returns appear acceptable to some franchisees, as eight stores have opened in the last two months alone. In our view, it is probable that LFL sales, expansion and share buy-back guidance will be raised at the 3 August interim results.”


Peel Hunt expects Domino’s to benefit from a 20% increase in the customer base in 2020.


LFL sales in the first quarter were up 18.5% as a cut in VAT outweighed a decline in customer collection as a result of the COVID-19 lockdown.


“In Q2, although competition from the hospitality sector has returned, collection is allowed (vs not in Q1 21). Even if collection remains at 65% of pre-COVID levels, that could still be a 14% (65% x 21%) LFL sales boost.”


More commuting and social interaction should benefit collection, while the resumption of major sports tournaments should benefit delivery, said Jack.


“We estimate Domino’s aims to grow delivery sales by 20-35% over the next five years,” he said, adding that the pizza chain is also looking to double collection over the next five years.


The share price is the same as it was two years ago, despite the recruitment of a strong new management team, at least 20% more customers, overseas disposals, reduced debt and a new share buy-back programme, Jack noted.


“In our opinion, given that forecasts could soon be upgraded again, the shares are a Buy at 19x P/E (vs a 23x historic average),” he said.

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