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DMP - Domino's Pizza Enterprises

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Will be a short, short.
If it tanks again on the reporting day in Aus, will probably buy it as it looks to turn
 

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Well I think the pizzas have gone up in price and down in substance, which is understandable, be interesting to see how this one goes.
 
skc said:
DMP at current prices can't stop growing... or the share price will half. I hope it doesn't offer the wrong incentive to management as a result.

I need a bit more time to look thru this... but DMP's been a crowded trade for some time. I wonder if there's something in the results to change that.
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This post was made about 1 year ago, which happened to be the peak in DMP's share price (~$75). Today DMP dipped below $40 at one stage so the share price has pretty much halved from the peak of $80 right after the FY16 result.

The growth has slowed. ANZ is slowing but still doing pretty good compared to Europe and Japan where there's essentially no SSS growth. ANZ is around 50% of DMP on an EBITDA basis and has SSS guidance of 8%. Europe is ~25% @ SSS 6% forecast (actual FY17 = 3%) and the remaining Japan is also 25% @ 0-2% SSS forecast. So the optimistic view is that Europe and Japan are prime turnaround candidates, while the pessimist can say that Europe and Japan earnings deserve a much lower earnings multiple.

Next year's forecast EPS is $1.60 so if we give the ANZ earning (~50%) a generous PE of 25x and a more pedestrian PE of 18x for the other 50% we get $35. I really don't know to what extent DMP will be re-rated, my bias is that it won't be be that low in this reporting period, but there's probably not much prospect of a bounce away from $40 in the near term.
 
Domino's latest TV ad mentions how they'd received bad feedback from a customer and how much it hurt them to hear that! What an idiotic ad campaign. Almost designed to hurt business.
 
DMP is a very interesting story both chartwise and from a fundamental view. I well remember the first Domino's to open in N. Queensland.

At present DMP may be better looking at it's structure, branding, pizza size and cashflow etc. I'm not a fundie nor a large with garlic bread n coke, so I'll not comment on fundamental issues.

It's chart looks absolutely horrific with many funds exiting over the last few months and it is quite conceivable while the rest of the funds offload to punters or cross sell that it will return to $25 or less. The gap today says cheerio to the heights of recent times at $50 plus.

If I held it would I sell today at a loss? Definitely, although it may bounce which I once saw a pepperoni do when it was dropped by a very significantly drunk most beautiful lady at our local Dominos.

It rather looks like Napoleon's retreat from Moscow, slow and arduous as opposed to his Supreme assault, with a final rush to the loo at Les Invalides.

A 3 yr daily chart with RSI.

Screen Shot 2017-08-15 at 3.11.29 pm.png
 
Garpal Gumnut said:
It's chart looks absolutely horrific with many funds exiting over the last few months and it is quite conceivable while the rest of the funds offload to punters or cross sell that it will return to $25 or less. The gap today says cheerio to the heights of recent times at $50 plus.
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Hyperion Asset Management has been known as the astute investor who got into DMP early. Here's a piece by them which, frankly, is pretty weak.

https://www.livewiremarkets.com/wires/the-initial-reaction-is-rarely-the-right-one

First the Hyperion MD said that he remains a happy long term holder....but then in the same breath he's quoted that "the report was heavy on detail and would take some days to fully digest". Looks like he jumped to the conclusion a bit there?!

It is correct in a sense that the initial reaction is rarely the right one... but not in the way Hyperion is hoping. A bad miss on the report is usually followed by more selling. May be they are just drumming it up so they can exit their position.

I also think that the $300m share buyback is not really helpful. It is not doing it because the shares are undervalued (it's still at 31x historical PE), or that it has a lazy balance sheet. It's purely doing it to prop up the share price. Operating cashflow was only $132m which company's roll out plan will use up $90-95m in capex. Then there's ~$83m dividend to pay out each year. So the company is not exactly swimming in cash - the buyback just reeks of desperation.

Garpal Gumnut said:
If I held it would I sell today at a loss? Definitely, although it may bounce which I once saw a pepperoni do when it was dropped by a very significantly drunk most beautiful lady at our local Dominos.
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Lol. Not the dead-pepperoni bounce!
 
sptrawler said:
Well I think the pizzas have gone up in price and down in substance, which is understandable, be interesting to see how this one goes.
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The pizza boy at Domino store gave me a hint a few months ago by making the soggiest pizza I have ever bought from them. Didn't think to look at the DMP chart at the time. Doh.
 
Wysiwyg said:
The pizza boy at Domino store gave me a hint a few months ago by making the soggiest pizza I have ever bought from them. Didn't think to look at the DMP chart at the time. Doh.
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Wysiwyg - please send the pizza boy's details to either to a good major shareholder of DMP or to the board to get a handsome bonus. Who knows, he could be a real astute forecaster next time??

On the same subject, BP Securities has put DMP buy with price forecast $51 from earlier $80. I have seen many brokers tell their real clients to sell while keeping the buy for others to keep tempo running. Time will tell. I am optimistic however not every thing is bad with DMP and could $50 be a realistic price when market digests the whole story?

DMP needs to enhance the price instead of selling same rubbish at $5 considering market is prepared to pay for good quality stuff and to stop discounted coupons to stabilise cash flow. BTW if you eat the Pizzas sold from Pizza Hut in the USA they are much inferior in taste (Yes I know everyone has a different taste and I often pay $20 for a good quality pizza but I am not a regular type customer) to what we buy here. In India Domino pizzas on another hand are much better tasted than we eat in Aus.
 
Regarding the buyback -
Not only does it reek of desperation, it also coincides with Don Meiji planning to sell shares when the window opens..
 
VSntchr said:
Regarding the buyback -
Not only does it reek of desperation, it also coincides with Don Meiji planning to sell shares when the window opens..
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Ahh...

The buyback reads very badly. The company is chewing up most of its OCF in expansion, there's not enough left to pay a dividend. The ROIC on those incremental dollars spent to open a new store has to be higher than paying ~23x earnings for the company's own shares.

The lack of traction in Japan and Europe is also pretty worrying. This is supposedly a tech company that sells pizza. If it has a competitive advantage through its use of technology then why isn't being able to rinse the sort of SSS in J/EU that it does in AU. Maybe they just had first mover advantage in Australia (Pizza Hut was a bit of a mess and Eagle Boys was being run into the ground), and no real durable advantage. I see some of the shorters are saying that Ubereats/Menulog/Deliveroo etc are starting to eat into DMP's AU business.

It's still an amazing company, but this might be the start of where they get pulled back to the pack.
 
McLovin said:
The lack of traction in Japan and Europe is also pretty worrying. This is supposedly a tech company that sells pizza. If it has a competitive advantage through its use of technology then why isn't being able to rinse the sort of SSS in J/EU that it does in AU. Maybe they just had first mover advantage in Australia (Pizza Hut was a bit of a mess and Eagle Boys was being run into the ground), and no real durable advantage. I see some of the shorters are saying that Ubereats/Menulog/Deliveroo etc are starting to eat into DMP's AU business.

It's still an amazing company, but this might be the start of where they get pulled back to the pack.
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I was just going to say the same thing... I haven't actually looked at Ubereats until last night, downloaded the app and yes it will absolutely be a substitute to DMP. DMP's distribution capability was definitely the strongest competitive advantage (pretty sure it's not the taste of the pizza), along with the price. UberEats puts every restaurant on level playing field with DMP in terms of distribution. It's not helped at the same time that DMP is raising the price of their pizza.... trying to make them feel more premium to the customers (I can't see it working).

Here's my fearless prediction ... DMP will see negative ANZ SSS within the next 3 reporting periods. Actually it's not even that fearless - SSS growth was pretty pedestrian as recently as in 2014 IIRC.
 
skc said:
I was just going to say the same thing... I haven't actually looked at Ubereats until last night, downloaded the app and yes it will absolutely be a substitute to DMP. DMP's distribution capability was definitely the strongest competitive advantage (pretty sure it's not the taste of the pizza), along with the price. UberEats puts every restaurant on level playing field with DMP in terms of distribution. It's not helped at the same time that DMP is raising the price of their pizza.... trying to make them feel more premium to the customers (I can't see it working).

Here's my fearless prediction ... DMP will see negative ANZ SSS within the next 3 reporting periods. Actually it's not even that fearless - SSS growth was pretty pedestrian as recently as in 2014 IIRC.
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What about the franchisees? Those delivery services have set up a wholesale version of the distribution platform that DMP charge their franchisees all that money to access.

DMP have a pretty good record of knowing what their customers want, but I agree with you to me there is nothing "premium" about Dominos (I have been saying this for years so what do I know!?!) and with pretty much every pizza restaurant now available through a multitude of delivery services it makes me wonder about raising prices now. The other thing I don't get is further segmenting individual store geographies to lower time to delivery. If I order takeaway I'm pretty happy to wait 30-40 minutes. Maybe I'm the outlier, but I don't really see this as that big a selling point, esp versus quality, quantity and price.

I think your prediction is about a 70% chance.
 
imo it's a management problem, don meij seems too much like a big kid with too many wild ideas and too many gimmicks
 
I haven't been able to post I mean boast I mean post for a couple of days due to an issue with my browser. So Haven't been able to update.
Any way bailed out of the short yesterday and went a little long.
Did it a bit early so wasn't in the blue on the long till later this arvo.
Now looking to see if it retests 40 and breaks below.
That would pretty heavy. I suspect some consolidation here for a while.
McLovin said:
but I agree with you to me there is nothing "premium" about Dominos
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Now there is something premium about Dominos when you compair it to Pizza Hut. It's like when you go to Coles and you'r comparing dog food compared to Spam for dinner tonight.
How the hell has Pizza Hut survived all these years with the utter $h!t they serve up I just don't understand. Don't get me started on the gerkin and pickles. Who the f^ck puts pickles in a fricken hamburger. What is wrong with people?
But now with Deliveroo mania there's definitely more options for the fat pig at his computer all night.
 
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