Picture supply: Domino’s Pizza Group plc
Not too long ago, I’ve not simply been in search of low-cost shares to purchase – I discovered some and have been including them to my portfolio.
One in all them is a well known, worthwhile firm with ongoing progress plans – and what I see as a sexy share worth.
Sturdy model and ongoing progress prospects
The corporate in query is Domino’s Pizza Group (LSE: DOM).
To be clear, that is the London-listed firm that operates the native pizza enterprise within the UK, not the New York-listed grasp franchisor.
Domino’s enterprise mannequin strikes me as a simple one. It gives economies of scale and the corporate can hopefully exploit these extra by rising its enterprise in Britain.
It has refocussed its enterprise geographically in recent times although continues to function exterior the UK, for instance within the Republic of Eire and Poland. However it’s the progress alternatives in its largest market which have caught my eye.
Just by sticking to its knitting and persevering with to execute properly on its marketing strategy, I reckon Domino’s may do properly. Although it fell 22% final yr, the corporate’s revenue after tax was nonetheless £90m. That equates to a internet revenue margin of 14%.
Why I see worth
The autumn in revenue helps clarify why Domino’s made it onto my record of shares to purchase.
The share worth has tumbled 17% over the previous yr, reflecting Metropolis nervousness concerning the enterprise efficiency. However that places it on a price-to-earnings ratio of 11.
I see that as attractively valued for a enterprise that’s strongly worthwhile, has confirmed it could actually succeed, advantages from a robust model, and has a big buyer base. Certainly, it has been attempting out a loyalty programme with round 630,000 clients and now plans to broaden that to roughly 3m pizza lovers.
There are dangers. Internet debt is £266m. I see that as manageable however it’s larger than I would really like. Pizza gross sales may fall if customers tighten their belts (which might be exhausting to do in each senses in the event that they eat an excessive amount of pizza!)
However I primarily see this as a fairly simple enterprise that just by persevering with to do what it has been doing currently ought to have the ability to create long-term shareholder worth. Not solely am I hopeful that the share worth can develop, however I additionally contemplate the 4.3% dividend yield to be engaging.
Final yr, the agency’s supply enterprise returned to progress. It sees alternatives to construct on that momentum this yr, though its deal with value-based advertising and marketing campaigns barely issues me. It means that consumers are certainly feeling the pinch economically. Competing on worth might be unhealthy for a enterprise’s revenue margins and Domino’s profitability is among the issues I like concerning the funding case.
On stability, to me, this share seems to be undervalued, which is why I made a decision to get a slice of the motion.
