Bell Potter thinks the Domino's (ASX:DMP) share price is 'mouthwatering' 

Why Bell Potter thinks the Domino's Pizza Enterprises Ltd (ASX: DMP) share price could go 13% higher in the next 12 months.

| More on:
three building blocks with smiley faces, indicating a rise in the ASX share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Domino's Pizza Enterprises Ltd (ASX: DMP) share price surged 7% last Wednesday following stronger than expected half-year results for FY21 (1H FY21). Its shares pushed higher the next day to set an all-time record high of $115.97 before finishing the week at $107.68. 

Key results highlights 

Group same store sales (SSS) increased 8.5%, significantly higher than the company's 3–6% medium-term target range. The pace of new store openings was also significant, with 127 net openings across the group. 

Domino's reported its earnings before interest, tax, depreciation and amortisation (EBITDA) in Japan lifted 54.9% against the prior corresponding period, with SSS up 36.4%. The company attributed the result to the fruits of its strategic initiatives over the past two years, driving material growth in new customers and purchase frequency. Store roll out continued at a high pace with 68 new store openings, taking Japan's store tally to 742. 

The company's Europe segment was strong as a whole with 1H FY21 EBITDA up 20.1% and SSS up 6.4% . Germany continued to outperform, driven by TV marketing under a single brand, ramp-up of organic store openings (15 stores) and a higher mix of delivery orders. In France, store openings gathered momentum (adding 19 stores) which is expected to continue, providing further evidence of a re-energised franchisee network.

ANZ performance was solid, but arguably overshadowed by Japan and Europe. Experienced franchisees grew sales 5.7% to $648 million with 13 new stores opening. 

The group's EBITDA increased 23.8% to $218.7 million while underlying NPAT increased 32.8% to $96.2 million. 

The company hinted that given its strong balance sheet and franchisee profitability, it intends to accelerate expansion and remains "active in seeking additional Domino's territories where they deliver value." By 2025–2028, the company is targeting 1,200 stores in ANZ, ~1,000 stores in Japan and ~2,700 across its European operations. 

Bell Potter upgrades Domino's share price target with a buy rating 

Following the strong result, Bell Potter strengthened its growth and margin assumptions across the group, particularly in the Japan segment. The broker's 12-month price target increased to $122.00, from a previous $99.30. This represents an upside of 13.30% to its closing price on Friday. 

The broker believes that Domino's has significant long-term growth prospectus, with Europe, Japan and acquisitions being the major drivers. 

Domino's forward-looking guidance 

While the company was unable to provide any concrete earnings guidance, it did provide a positive outlook which cited an accelerated investment in new store openings and strategic acquisitions in the second half of FY21. The company stated that it expects "full year performance to be even higher than our already positive, medium term outlook".

Domino's went on to reaffirm its 35 year forecast horizon, which includes:

  • Annual same store sales growth: +3 – 6%;
  • Annual store growth: +7-9%
  • Annual net capex: $60–100 million

The Domino's share price is up 75% on this time last year, and on current prices the company has a market capitalisation of $9.32 billion.

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Share Market News

3 of the best ASX shares to buy with $5,000

These shares could be among the best to buy now according to Bell Potter.

Read more »

A woman holds her finger to the side of her lips in contemplation as she looks upwards to an array of graphic images of light bulbs above her head, one of which is on and glowing.
Share Market News

Macquarie tips more than 15% upside for this ASX 200 utilities stock

This ASX 200 stock could be set to rise.

Read more »

A woman stands at her desk looking a her phone with a panoramic view of the harbour bridge in the windows behind her with work colleagues in the background.
Share Market News

5 things to watch on the ASX 200 on Friday

Will the market end the week strongly? Let's find out.

Read more »

A businessman stacks building blocks.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX shares hit a new record high today.

Read more »

A man sees some good news on his phone and gives a little cheer.
Share Gainers

Why Auckland Airport, Australian Ethical, Breville, and Clarity shares are charging higher

These shares are having a better day than most on Thursday. But why?

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Share Fallers

Why 29Metals, CAR Group, DroneShield, and Santana Minerals shares are falling today

These shares are missing out on the good times on Thursday. But why?

Read more »

Cheerful businessman with a mining hat on the table sitting back with his arms behind his head while looking at his laptop's screen.
Broker Notes

Macquarie tips 50% upside for this ASX 200 miner, and it's not BHP!

Unheralded miner poised to surge?

Read more »

A woman sits at a table with notebook on lap and pen in hand as she gazes off to the side with the pen resting on the side of her face as though she is thinking and contemplating while a glass of orange juice and a pair of red sunglasses rests on the table beside her.
Share Market News

Will these ASX 100 shares surge or sink in July?

These are two ASX favourites to watch closely this month. 

Read more »