Morningstar | Domino's Is Set to Confirm Its Leadership in the Internet of Food; AUD 53 FVE Unchanged
Long-term investors, looking past short-term overhangs and sales growth volatility, can grab a slice of the action at an approximate 30% discount to our AUD 53 fair value estimate.Just as in other discretionary and consumer staples retailing, digital is disrupting the food industry as consumers relish the convenience, price transparency, and extended product offerings of the online channel. The leadership of narrow-moat Domino's Pizza Enterprises, or Domino's, in the Australian online takeaway market is being tested by new-kids-on-the-block food delivery service providers Uber Eats, Deliveroo, and Menulog.
Unlike many Australian retailers caught out by the rapid expansion of e-commerce, Domino's has long been a pioneer in online-delivery technology and innovation, and currently commands 40% of Australian digital food deliveries. A key advantage over delivery platforms, Domino's controls its cooking times and food quality--both important drivers of convenience and customer retention.
We forecast the delivery platforms will make a dent in Domino's market share, but the strong growth of the "Internet of Food" provides enough space for Domino's to expand, just at a slower rate. We expect Domino's can still grow its Australian network sales at a CAGR of 9% over the next decade, underpinned by 4% same-store-sales growth and 4% unit growth.
We project Uber Eats and Deliveroo should gain share in the online food delivery market--at the expense of Menulog and Domino's. However, this does not impede Domino's ability to grow ANZ network stores to 1,200 over the next decade. Domino's shares even look appealing if the ANZ network adds no new stores and EBITDA margins are flat. In this downside scenario, our valuation of AUD 42 is still roughly 10% above current prices.
Details are scarce, but we estimate the effect of the lawsuit against Domino's will be immaterial. If Domino's is found guilty of misleading franchisees to underpay their employees, no settlement is negotiated, and the issue is network wide, we estimate the effect of the damage at AUD 114 million or AUD 1.34 per share, representing 3% of our AUD 53 fair value estimate.
For more details please refer to our report "Check Out the Deal on Domino's Pizza" published July 3, 2019.
Domino's Pizza is engaged in the operation of retail food outlets and the operation of franchise services. Co. operates in Australia, New Zealand, France, Belgium, The Netherlands, Germany and Japan. Co.'s reportable segments are focused on the geographical location in which it operates in: Australia/New Zealand, Europe, and Japan. As of Jul 3 2016, Co.'s total network store count was 714 in Australia and New Zealand, 816 in Europe and 453 in Japan.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.