We believe investors will begin to focus more keenly on the health of the core UK and ROI business given DOM’s decision to exit its International markets. For H219 we forecast +3.0% LFL sales growth ex-splits, and +1% incl splits, in the key UK division. At the Q3 stage UK LFL ex-splits was +3.0% (+1.4% incl splits) so we essentially expect a continuation of trends, although we would note the comp is more difficult in Q4 so the group will need a good finish to the year. A key focus for us will be volumes. In Q3, UK like-for-like orders were -0.5%, items per order were -2.4%, product mix impact was up 2.5% and price was +1.8%. Volumes is a driver of the plc revenue line so this is somewhat concerning. Management highlighted an improving volume trend in Q3 so we will look for evidence that this has continued.
View – The shares have re-rated by c.15% since it announced the disposal of the International business. The franchisee issue has yet to be resolved, UK LFL’s are showing lower levels of YoY growth, and there is no timing on the International exit or management changes. We have a HOLD recommendation on the stock with 280p PT and would be cautious at current levels.
Precis
Domino’s Q4 update
We believe investors will begin to focus more keenly on the health of the core UK and ROI business given DOM’s decision to exit its International markets. For H219 we forecast +3.0% LFL sales growth ex-splits, and +1% incl splits, in the key UK division. At the Q3 stage UK LFL ex-splits was +3.0% (+1.4% incl splits) so we essentially expect a continuation of trends, although we would note the comp is more difficult in Q4 so the group will need a good finish to the year.
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