Domino’s Pizza Enterprises (DMP) – Remodelling job

Domino's Pizza Enterprises operates retail food outlets. The company holds franchise rights for the Domino's brand in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Cambodia, Germany, Luxembourg, Taiwan, Denmark, Malaysia, and Singapore. The company was founded in 1983 and is based in Brisbane.

Domino's Pizza Enterprises announced the surprise exit of CEO Mark van Dyck, effective in December, despite him only taking the top job in November last year. Veteran fast-food tycoon Jack Cowin, Domino's major shareholder, will become executive chairman until a new CEO is appointed. This suggests to Ord Minnett that the turnaround job at the fast-food chain may be a much larger task than Van Dyck – and the market – expected, despite what appeared to be the CEO's apparent rapid progress in resetting the business, e.g. the closure of 205 loss-making stores in Japan and Europe. It may well be that Cowin, who made his fortune with the Hungry Jack’s franchise, did not see changes to the business being deep enough or implemented fast enough. Nonetheless, it is a puzzling decision given Van Dyck appeared to be a ‘captain’s pick’ by the chairman after his earlier consulting work with Domino’s.

In the wake of the announcement and after analysing the implications, Ord Minnett has reworked its Domino’s model in a major way, with the key changes being:

• We have all but discounted any network growth;

• Same-store sales growth is expected to slow as Domino’s focuses on margins and profitability;

• We now forecast no final dividend for FY25 and none in FY26;

We have trimmed our FY25 EPS estimate by 0.6%, while our FY26 and FY27 forecasts fall by 1.1% and 5.9%, respectively, leading to a cut in target price to $28.00 from $31.00. We have raised our recommendation to Buy from Hold given the very attractive value now on offer.

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