Numis upgrades Domino's Pizza to 'buy' on strong growth prospects
There is upside risk to the market’s forecasts for Domino’s Pizza, according to Numis Securities, which upgraded the stock from ‘add’ to ‘buy’ on Thursday after a strong annual report.
Domino's Pizza Group
321.20p
17:05 18/04/24
FTSE 250
19,450.67
17:14 18/04/24
FTSE 350
4,334.00
17:14 18/04/24
FTSE All-Share
4,290.02
16:54 18/04/24
Travel & Leisure
7,512.73
17:14 18/04/24
The pizza delivery chain reported 10.3% growth in group revenues to a record £294.4m in 2014, with UK like-for-like (LFL) sales rising 11.3%. Meanwhile underlying profit before tax (PBT) was up 15.1% at £54.8m, slightly ahead of the £54.3m consensus forecast.
Numis pointed out that, excluding £3m of one-off costs that were treated as underlying in the first half, full-year PBT would have increased 21%.
Domino’s opened 44 new stores last year, with 40 coming in the UK, taking the total across four countries to 894.
“Given this, record sales from new sites and UK LFL sales being up 9.5% (vs 13.8% comp) over the last eight weeks, we expect the pace of expansion to accelerate by 32% in 2015,” Numis said.
“Reflecting strong growth prospects and the price-to-earnings ratio being in line with the historic average, we are moving our recommendation to ‘buy’ from ‘add’.”
The broker said that its current 2015 forecast for 16% earnings growth assumes just a 3% improvement in LFL sales and falling gross margins for the UK.
“We believe there is upgrade risk to forecasts, which, after a £24.5m cash inflow in 2014 (resulting in a £11m net cash position at year-end), could be enhanced by additional share buy backs,” it said.
Numis has a 850p target price for the shares, which were up 6.7% at 738.6p on Thursday morning.