Reporting season always throws up some excellent results. Here’s my pick for three great FY21 efforts, including one that has the trifecta of profit jump, attractive yield and significant value in the stock price.
1. Domino’s Pizza Enterprises (DMP, $142.59)
Market capitalisation: $12.2 billion
Five-year total return: 15.4% a year
FY22 forecast dividend yield: 1.3%, 59.8% franked (grossed-up yield, 1.7%)
Analysts’ consensus valuation: $135.00 (Thomson Reuters), $113.388 (FN Arena)
Growth star Domino’s Pizza continued to impress, with a 14.6% increase in sales in FY21, to $3.74 billion, and a 29.2% jump in net profit, to $188.2 million, beating market expectations, driven by new store openings and strong same-store sales growth across its Australia/New Zealand, European, and Asian operations.
On behalf of US pizza giant Domino’s, DMP is the exclusive master franchisee in Australia, New Zealand, Belgium, France, Netherlands, Japan, Germany, Luxembourg, Denmark and Taiwan. The company had a particularly buoyant year in Europe and Japan, where revenue growth came in at 18.7% and 19.3% respectively. In contrast, growth in the mature Australian and New Zealand market was more modest at 9.1%.
The company adapted well to the ongoing COVID restrictions: with customers in most territories faced with restricted movement, Domino’s online sales surged 21.5% to $2.93 billion, driven by pandemic movement restrictions forcing customers to order at home. Online accounted for 78.2% of sales, up from 73.8% in FY20. During the financial year, Domino’s opened 285 stores, taking the total to 2,949, and served 281 million pizzas.
Underlying earnings per share (EPS) grew by 28.7%, to 217.6 cents, and is now showing a compound annual growth rate over the last ten years of 21.9%, a standout result in anyone’s language. The company’s return on equity (ROE) rose from 38.1% in FY20 to 49%.
The strong result flowed through into the dividend – the final dividend of 85.1 cents a share (70% franked) took the full-year payout to 173.5 cents per share, a 45.4% lift on FY20. With the interim dividend of 88.4 cents a share being 50% franked, the full-year dividend was 59.8% franked.
Domino’s said FY22 will be a record year for store expansion: it expects to add about 500 stores, both through organic new-store openings and the integration of the Taiwan operation. DMP plans to open its 3,000th store in the next two months, its 4,000th store in calendar year 2023, and its 5,000th store during calendar tears 2026-27.
It was a cracking FY21 result, to add to the tremendous success story that DMP has been on the stock exchange, delivering total shareholder returns of more than 8,200% since it listed in May 2005. But unfortunately, it has shot past what analysts believe it’s worth at the moment.
2. Adairs (ADH, $3.61)
Market capitalisation: $636 million
Five-year total return: 14.2% a year
FY22 forecast dividend yield: 6.9% fully franked (grossed-up yield, 9.9%)
Analysts’ consensus valuation: $4.70 (Thomson Reuters), $4.233 (FN Arena)
Manchester and homewares specialist retailer Adairs is that rare combination of excellent result, great yield and attractive value in the share price. Adairs is benefiting from the pandemic-inspired home renovation boom – that feeling of “home is my haven, so why not upgrade it?”
Total sales jumped by 28.5% to $499.8 million in the financial year, with Adairs stores’ sales up 18.1% and online sales surging 33.2%, to $126.9 million, and the Mocka online furniture and homewares retail arm boosting its sales by 30.9% to $60.2 million. In total, online sales rose 51% to $187 million, reaching 37% of total sales.
The sales performance was highly creditable given that one-third of all trading days during the financial year were disrupted by store closures: in Melbourne, which accounts for one-quarter of Adairs’ store network, stores were closed for 99 days.
The sales performance drove strong earnings gains: the EBIT (earnings before interest and tax) figure at Adairs almost doubled on FY20, to $96.7 million, while at Mocka, EBIT rose 26.8% to $12.4 million. Adairs’ gross margin increased by 5.2 percentage points, to 66.7%. This fed into a net profit rise of 80.7%, to $63.7 million. For the full-year, the dividend payout to shareholders was 23 cents a share, fully franked, more than double the 11 cents paid last year.
Adairs did note that lockdowns are hurting it so far in the new financial year: Adairs stores have seen a 27% decline of sales in the first seven weeks of FY22, contributing to a 11.7% drop in total sales. However, Adairs online sales were up 12.9% and Mocka sales were up 16.1%. Analysts are trying to look-through the impact of lockdowns, and they’re generally pretty positive on ADH. If it can maintain the FY21 dividend, which analysts seem to think it can, the forecast fully franked yield on offer is very attractive.
3. Corporate Travel Management (CTD, $21.19)
Market capitalisation: $2.9 billion
Five-year total return: 7.3% a year
FY22 forecast dividend yield: 0.8%, unfranked
Analysts’ consensus valuation: $23.20 (Thomson Reuters), $23.649 (FN Arena)
Lastly, here’s a result that at first sight looked bad, but was actually quite admirable. Global corporate travel provider Corporate Travel Management has obviously been hammered by the pandemic, and to no-one’s surprise, reported a 45% fall in revenue for FY21, to $174 million, an underlying loss at the EBITDA (earnings before interest, tax, depreciation and amortisation) level of $7.2 million, and a net loss of $32.3 million, compared to a net profit of $28.4 million in FY20.
Analysts are looking-past that result, based on the strong recovery in the business in the fourth quarter, particularly from the company’s two largest regions, North America and Europe. North America, Europe and the Australia/New Zealand regions were all profitable at EBITDA level in the fourth quarter: the North America and European operations reported revenue increases of 48% and 84% respectively. About two-thirds of earnings come from the US and Europe, and analysts are trying to assess whether the strength of that fourth-quarter (indeed, second half: underlying EBITDA was $8.1 million) rebound is sustainable, given the situation with the Delta variant, and the extent to which virtual tele-conferencing is going to change corporate travel spending for the foreseeable future, will flow into sustained recovery as vaccine progress leads to re-opening in these markets.
The company used the downturn to pick-up some businesses; in particular, the acquisition of US-based Travel & Transport in October 2020 for $275 million makes CTD the fourth-largest global travel manager in the world. The company is embedding efficiencies from the acquisition and has made permanent reductions to its cost that position it very well for an earnings rebound post-COVID, as the US and Europe surge back.
CTD ended FY21 with no debt and cash of $99 million, with the revenue recovery enabling it to cut its unused credit facility from $180 million to $110.6 million. The company did not pay a final dividend, but it expects a return to dividends in calendar 2022.
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