Australian (ASX) Stock Market Forum

DMP - Domino's Pizza Enterprises

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skc said:
Is it just me or is the bear case for Dominos building? Since the AGM update in Nov generating a bit of price spike, it has been trading very soft on a range of factors:

- Started paying weekend penalty rates. The increase was about $5 per hour for the average worker. If there are 4 workers per store (2 drivers, 2 kitchen) doing 12 hours on a Sunday, that's' an additional cost of $5 x 12 x 52 x 4 = $12.5k per store in extra labour costs. With 700 stores in Australia that's an extra $9m in cost, or ~6% of the $139 NPBT last year.

- Started Sunday surcharge of 10%. DMP said they have tested this with customers in selected market. But it's really hard to see this not impacting demand.

- The last announcement by DMP claimed that "DMP has seen no evidence to support link between share price and introduction of Sunday surcharge)". Of course there isn't! Unless you do a survey of the sellers and ask if they sold due to the surcharge, how can you come up with evidence linking to the share price. What isn't said was that DMP hasn't seen a link between Sunday surcharge and sales. The fact that this was not mentioned could be telling - it would have arrested the share price fall nice and quick.

- Being investigated for wage underpayment (following footstpes of 7-Eleven, Caltax, Bakers Delight etc) - fresh news this morning from AFR.

- No real new technology innovation - gimmicks like zero-click and drone deliveries are unlikely to move the dial in sales.

- Japan and Europe unlikely to outperform - Japan's been poor for some time, and Europe's only just going through a big integration / rebranding, plus currency impact would have eaten away most growth.

The share price has retreated from a high of $80, but I'd guarantee you that it is not priced in should DMP disappoints the market. The Dec half shouldn't be much surprise but the market will pour over any change in the outlook.
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I think you could be right...just had a quick look at the technical's and price really needs to hold this $58 level if it breaks down here we could see it in free fall.

FA from Lincoln Stock doctor currently has the stock at $69.46
and a Consensus target at $75 so plenty of value by their assessment.

I would be waiting for the interim result on the 15/02/2017 and see what happens.
 
Triathlete said:
I think you could be right...just had a quick look at the technical's and price really needs to hold this $58 level if it breaks down here we could see it in free fall.

FA from Lincoln Stock doctor currently has the stock at $69.46
and a Consensus target at $75 so plenty of value by their assessment.

I would be waiting for the interim result on the 15/02/2017 and see what happens.
Click to expand...

Around the $55 to $56 area on the weekly imo.

(Weekly chart, click to expand)
DMP Weekly 060217.jpg
 
Boggo said:
Around the $55 to $56 area on the weekly imo.

(Weekly chart, click to expand)
View attachment 69862
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You may be right also going by your chart...I was using the monthly chart and using a few ranges and just came out with my strongest levels at $58 followed by $52.


The $55 to $56 area is also a support area just in my opinion the other two are stronger based on the longer time frame....I guess we will have to wait and see.....
 
Trembling Hand said:
Right on que.

http://www.theage.com.au/interactive/2017/the-dominos-effect/

Don't think this will help. What a rubbish company in all ways!!
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Thanks. It feels like every franchiser in the system has got some skeleton in the closet. Interestingly I literally just come to the conclusion yesterday that DMP is a profit machine milking the franchisees. And it also explains why they have such a grand expansion plan.

DMP will most likely fall a fair bit tomorrow... but it's reporting on Wednesday and I won't be surprised if they announce something positive just to give share price a boost. Nonetheless it feels like the cat is out of the hat and it has a good chance to reverse by the next day, or even by 10:25am for a very bearish signal.

I think the next phase will see hedge funds conduct their own first hand due diligence and then pile in a bit more. Shorts only 5% which is not where hedge funds tend to leave ASX stocks if they perceive structural flaws. DMP being well owned by institutions can easily support 12-15% shorts one would think...

I haven't quite picture the end game.. may be the rising labour cost tips the balance so the franchisees reach the point of no return... or may be their European expansion plans get exposed by more effective regulators there?

OR perhaps everything is awesome and it's just a few disgruntle ex-franchisees feeling dirty? Morgan Stanly (I think) just made a $100 per share prediction on DMP...
 
The reason for the fall is the Fairfax investigation.
They are underpaying workers like (7-11) as previously noted.
Today there was more news!

Stores are selling Visas to live in Australia. You pay the operator between $100,000 - $150,000 and they arrange a Visa for you and give you a job making pizzas. You get paid for 40 hours but are expected to work 60, and of course that means the business gets free labour.
 
Yes, I think the ramifications will be serious going forward. I dont think its just a few disgruntled ex-franchisees, skc. It has the look of structural and its an integrity issue - just about the worst issue in a business.
 
skc said:
OR perhaps everything is awesome and it's just a few disgruntle ex-franchisees feeling dirty? Morgan Stanly (I think) just made a $100 per share prediction on DMP...
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At $100 it's getting close to the MC of Dominoes Inc. Hard to believe a franchisee can be worth anywhere near as much as the franchisor.
 
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Triathlete said:
I think you could be right...just had a quick look at the technical's and price really needs to hold this $58 level if it breaks down here we could see it in free fall.
Click to expand...

Triathlete said:
You may be right also going by your chart...I was using the monthly chart and using a few ranges and just came out with my strongest levels at $58 followed by $52.


The $55 to $56 area is also a support area just in my opinion the other two are stronger based on the longer time frame....I guess we will have to wait and see.....
Click to expand...

Not a bad estimate straight through the $58 level down to $52.18 and a close of $53.56...

The next question is will it stop here or continue down to $46..???????

Has anyone got any further views from here..??????
 
skc said:
Thanks. It feels like every franchiser in the system has got some skeleton in the closet. Interestingly I literally just come to the conclusion yesterday that DMP is a profit machine milking the franchisees. And it also explains why they have such a grand expansion plan.
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I have a friend who works for the RetailZoo set of franchises (Boost Juice, Cibo, Salsas) and they make a killing on a very small asset base. I can't believe some of the terms the franchisees sign up to... It's scary.
What's more - Salsas is tanking hard, but they just keep the stores open to milk it. The franchisees are bleeding though.

To add to it, Bain just bought out a good chunk of RetailZoo from the founders, so they're boosting EBITDA figures as much as possible in preparation for the float.
If DMP is anything to go by, the valuation would be astronomical.
 
Klogg said:
I have a friend who works for the RetailZoo set of franchises (Boost Juice, Cibo, Salsas) and they make a killing on a very small asset base. I can't believe some of the terms the franchisees sign up to... It's scary.
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Here's an interesting view by Findthemoat (this guy is sharp).
http://findthemoat.com/2017/02/14/dominos-pizza/

Look at the number coming out of DMP today... the average shop has an EBITDA of ~$140k, although it is unclear what this include/exclude (for example, are training fee included? Or fee external to DMP like utilities). We also know that the average franchise costs ~$560k (based on 3-5 year pay back period). If you assume a 6% business loan on the capital of $560k, the carry cost of the business is $34k. D&A are non-cash but you can bet there will be ongoing refresh of the store's fitout and equipment that demands real cash injection from the franchisee. The press is saying franchisees are asked to pay $18.5k for a think shake machine, $60k for faster ovens, $10k for electronic price boards... so let's call this $30k each year. So the real PBT to the owner operator, on average is $140k-$34k-$30k = $76k. IF he/she worked 3000 hours a year, then it works out to be an hourly rate of $25.33. Arguably there's a chance for more... but it really doesn't sound like the owner operator has a lot of levers to pull to change his operations - with the exception of staff efficiency (and hours paid).

You would think that your typical franchisee would do some due diligence before signing up... so the recent negative press could see their expansion plans dented somewhat. But it is surprising to see DMP's claim that 87% of new franchises were sold to "internal candidates". I am guessing they are those who ran the more profitable stores.

It also makes you wonder perhaps that's the reason Japan is not doing nearly as good as ANZ. Most stores there are not franchised but company owned.

DMP has been valued assuming Japan and Europe are going to be performing like ANZ. The evidence is not there yet so a more rational PE multiple on these regions alone could see another 20% lobbed off the current share price.

skc said:
DMP will most likely fall a fair bit tomorrow... but it's reporting on Wednesday and I won't be surprised if they announce something positive just to give share price a boost. Nonetheless it feels like the cat is out of the hat and it has a good chance to reverse by the next day, or even by 10:25am for a very bearish signal.
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As it turns out it opened on the high and dropped through the day for over $10. Given how I've expected this to play out... I didn't trade it nearly well enough.
 
McLovin said:
At $100 it's getting close to the MC of Dominoes Inc. Hard to believe a franchisee can be worth anywhere near as much as the franchisor.
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What do you think of the tail risk with this whole arrangement? If you were valuing it how much would you factor it into the arrangement?

For those that do not know Dominoes Australia have exclusive rights from the Master Franchisor (Domino's US).

I think the agreement for Aus/NZ is up for renewal in 2028 and some of the others are 2031.

What are the assets worth without the Franchise rights?

If the local owner of the exclusive rights operates a really successful business isn't it safe to say any long-term success means they'll probably be paying a lot more to renew the license than they the did last time. And if it's really juicy, what's stopping the head company from not renewing it and setting up their own asset base in Australia? All the ground work is done...
 
skc said:
I think the next phase will see hedge funds conduct their own first hand due diligence and then pile in a bit more. Shorts only 5% which is not where hedge funds tend to leave ASX stocks if they perceive structural flaws. DMP being well owned by institutions can easily support 12-15% shorts one would think...
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It's happening... http://www.shortman.com.au/stock?q=DMP
Capture.JPG
 
Boggo said:
Around the $55 to $56 area on the weekly imo.
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Triathlete said:
You may be right also going by your chart...I was using the monthly chart and using a few ranges and just came out with my strongest levels at $58 followed by $52.

The $55 to $56 area is also a support area just in my opinion the other two are stronger based on the longer time frame....I guess we will have to wait and see.....
Click to expand...

As expected Triathlete, in the zone.
Just my opinion, I would be surprised if this level can support it, my :2twocents
Does anyone see potential for a 50% retracement to around $41 ??

(Weekly chart but based on only one day of data - click to expand)
DMP Weekly 060317.jpg
 
Boggo said:
As expected Triathlete, in the zone.
Just my opinion, I would be surprised if this level can support it, my :2twocents
Does anyone see potential for a 50% retracement to around $41 ??

(Weekly chart but based on only one day of data - click to expand)
View attachment 70215
Click to expand...

My :2twocents I would first need to see a close below $52.30 before a further move down to $48.50 , $46 and then the $41 area.
 
Big mistake, remember what happened to Michael Jackson as soon as he got into bed with Pepsi!
His nose started falling off his face and then all the I love kiddies stuff started coming out.

Pepsi is for losers :eek: :p:roflmao:
 
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notting said:
Big mistake, remember what happened to Michael Jackson as soon as he got into bed with Pepsi!
His nose started falling off his face and then all the I love kiddies stuff started coming out.

Pepsi is for losers :eek: :p:roflmao:
Click to expand...

There's an old thing in the QSR world that if a company sells Pepsi over Coke, that business is either tight as a fish' bum, or not making enough money [emoji6]
 
It's not often that you get a shorting opportunity like what you got this morning......

DMP asx.JPG


That is the asx listing for the year.

This is the yanki doodle for the year - note last nights action!!

DMP nyse.JPG


This is how DMN opened this morning

DMP today.JPG


Red circle --

 
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