How long have you held Domino’s (DMP)?
We started buying DMP in 2011.
Source: Yahoo!7. Datas as at March 20, 2014
What do you like about it?
DMP is the largest pizza chain in Australia/New Zealand, in terms of both network store numbers and network sales, and has opened up an additional growth path with the acquisition of Domino’s Japan. It is a high growth business, with revenue growing annually around 8% over the past three years and return on investment above 20% over the past three years – it is very capital efficient.
How is it better than its competitors?
Customers buy pizzas from Domino’s because its offering is affordable and it is convenient. Its value proposition to the customer has improved significantly in recent years. Price inflation has been kept to a minimum, with the company having reinvested scale and efficiency benefits into keeping prices low, whilst other fast food operators and restaurateurs have had to raise prices to offset cost inflation. The main reason behind why Domino’s is better than its competitors is its early use of technology. The focus on online sales has boosted Domino’s ahead. Almost 60% of total sales across Australia are now being made online, with 50% of those sales coming from mobile devices.
What do you like about its management?
- They have a focus for online sales.
- Continued focus on organic growth, coupled with a sell down of corporate stores.
- Focus on quality rather than costs. Domino’s is increasing the quality of offerings.
- Continued dividend increases for shareholders – this year the company has increased its interim fully-franked dividend by 14.2% to 17.7c per share.
What is your target price?
We don’t have one, as we see ourselves as a long-term owner of a business – not a share trader
At what point would you sell it?
We would sell Domino’s if our expected future three-year return was lower than the current cash rate, plus our required risk premium for equities. Any material change to the business model or senior management would prompt a review of the holding.
How much has it added to your overall portfolio over the last 12 months?
The return from the portfolio over the past 12 months was 22%, with approximately 10% of this coming from our exposure to Domino’s.
Is it a liquid stock?
Yes, Domino’s is in the ASX 200 and turns over roughly 110-150,000 shares per day – hence it is relatively liquid.
Where do you see the value?
In challenging economic times, Domino’s value proposition should lead to solid same store revenue growth. In addition, we believe Domino’s is less than 50% through its store rollout in the territories in which it operates, so the store rollout should continue to fuel growth. And finally, due to the success of Domino’s and by the fact that the management team is held in high regard by Domino’s Pizza Inc, there is the possibility it will be awarded further master franchise regions.
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