Will Investors Want An Extra Slice Of Domino’s Following Q3 Update?
Spreadex | Oct 04, 2017 11:30
So far this year the pizza company has been more jabroni than pepperoni. Things initially were going well for the fast food firm, the stock climbing to a 7 month high of £3.95 on the eve of March’s full year results.
Yet it was that annual report that knocked over the first domino in the company’s 2017 decline, with the stock dropping 13% in a single session. UK like-for-like sales growth slowed from 11.7% in 2015 to 7.5% in 2016, the decline blamed, in part, on the ‘disappointing’ performance of its ‘Winter Survival’ meal deal.
There were some full year positives, namely a 17.1% jump in underlying pre-tax profit to £85.7 million and a 16% hike to its final dividend. However, the nail in the coffin was Domino’s update for the first 9 weeks of 2017, where UK comparable sales growth came in at 1.5% against the 10.5% seen for the same period the year previous.
After that plunge Domino’s settled between £3.10 and £3.30, bouncing around that bracket from mid-March to mid-June, only to suffer another shock as analysts at Investec (LON:INVP) and Berenberg highlighted the threat of a price war with Pizza Hut, and the impact of Just Eat (LON:JE) and Deliveroo.
This dragged the stock below £3, with its decline exacerbated a month later by its half year results. For the 26 weeks to 25th June, UK like-for-likes (excluding the impact of split territories) grew by 2.4%, a huge slowdown from the 13% surge posted in 2016. And while underlying pre-tax profit rose 9.1% to £44.6 million, the news that the company would be speeding up its expansion despite shrinking comparable sales spooked investors.
Domino’s spent the rest of summer chugging along around the £2.70 mark, investors unwilling to get back on board. That is, they were until the company announced a £15 million share buyback on 19th September, a move that has lifted Domino’s to a current trading price, and 3-ish month high, of £3.08.
In terms of next week’s third quarter statement, Domino’s really needs to see some kind of improvement on the like-for-like sales front, even if it is just a similar gap between its current performance and the muscular growth seen in 2016.
Domino’s Pizza Group Plc (LON:DOM) has a consensus rating of ‘Hold’ with an average target price of £3.37.
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