Domino’s shares spike as rating upgraded with potential for 360 more UK stores
Shares in Domino’s were boosted this morning after analysts upgraded its rating, and encouraged the UK’s biggest pizza-maker to expand.
Analysts at Jefferies said the ‘Pepperoni Passion’ maker could add a further 360 stores to its portfolio, leaving plenty of room for further growth in the years ahead. The upgrade sent the stock up six per cent.
Domino’s is already undergoing an expansion plan with a pipeline of 45 stores set to open this year.
“We matched Domino’s stores to UK and Irish towns and screened for locations without a store at given population levels,” they said.
Domino’s has around 1,200 stores across the UK and Ireland, including 104 sites in London alone.
A push for expansion comes ahead of the fast food chain results next month, with analysts predicting lower inflation will boost its balance sheet.
Last quarter, Domino’s said total orders came in at 16.7m down 1.2 per cent on the previous term. The board predicts 2023 underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the range of £132m – £138m.
“We see a significant runway for store growth and look forward to the FY23E results on 12 March for an update to the store target,” Jefferies said.
“Falling energy and food cost inflation should ease cost pressures for franchisees and support margins,” they added.
Domino’s Pizza also recently launched a trial with Uber Eats that will let users order pizza on the platform for the first time.
The fast food giant is mulling whether or not a spot on the takeaway platform will help boost sales.
Russ Mould, investment director at AJ Bell, said: “Domino’s Pizza got a boost from a positive broker note whereby Jefferies upgraded its rating on the stock from ‘hold’ to ‘buy’, citing new management, improved growth prospects and easing cost inflation.
“It might feel as if there is a Domino’s store in just about every major town and city in the UK, but Jefferies is confident it can add a further 360 stores and make money from them.
He added: “The idea of paying £20 for a takeaway pizza might give some people the chills yet Domino’s has shown there are still ways to shift large volumes even when the economy is going through a more lacklustre period.”