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Key points
- Domino's shares were on form on Monday
- A bullish broker note out of Domino's help drive the gains
- Broker still sees 32% upside for its shares over the next 12 months
The Domino's Pizza Enterprises Ltd (ASX: DMP) share price was a strong performer on Monday.
The pizza chain operator's shares charged 4% higher to $103.40.
Why did the Domino's share price charge higher?
Investors were bidding the Domino's share price higher on Monday in response to a bullish broker note out of Goldman Sachs.
According to the note, the broker has retained its buy rating but trimmed the price target on the company's shares to $136.20.
Even after the strong gain by the Domino's share price today, this implies potential upside of 32% over the next 12 months.
What did the broker say?
Goldman notes that Domino's will be announcing its half year results in the coming weeks. Ahead of the release, the broker has been updating its estimates to account for store openings, inflationary pressures, and the rebasing of market multiples.
The broker commented: "While impact of cost inflation is not straight-forward for DMP as a result of the significant franchisee operations, we factor in c. 6% inflation in both FY22 and FY23e as a result of the stronger than expected increase in forward contract prices for key commodities like Cheese and Wheat which were up +3.1% and +12.1% respectively through 1H22 on a yoy basis and which have been up an average of +9.9% and +21.1% respectively in the month of January."
"We also update our earnings outlook to adjust for the actual store roll-out YTD at +3, +36 and +86 respectively in ANZ, Europe and Japan regions for 1H22 and incorporate the latest FX forecasts. Overall, this results in a revision of our group EBITDA forecasts by -5.2% and -3.5% respectively over FY22 and FY23e," it added.
What should investors expect in the first half?
Goldman is forecasting first half earnings before interest, tax, depreciation and amortisation (EBITDA) of $198.2 million pre AASB16 and $229.7 million post AASB16. The latter represents an increase of 5.5% over the prior corresponding period.
This is expected to be driven by same store sales growth in the ANZ and Europe markets, offsetting weaker sales in Asia.
Goldman concluded: "Overall, we expect the group to see SSS growth at +2.4% for the half, resulting in total network sales of A$2,010.2mn and Revenue of A$1,183.8mn. We forecast group NPAT to be at A$101.8mn, up 5.9% yoy."
"DMP continues to offer a strong growth outlook of c. 15.4% CAGR growth at the EBIT level FY21-24e at a valuation which remains attractive on a growth relative basis vs. other global restaurant peers. We maintain our Buy rating on DMP," it added.
