Shares in pizza chain Domino’s Pizza (DOM) shot up 13.6% to 152.6p on Tuesday after the company unveiled a new growth plan and a new £45 million share repurchase programme.
ACCELERATING GROWTH
Taking the top job at Domino’s in the middle of a pandemic probably wasn’t the most appetising of roles Dominic Paul could have taken on but the new team have made a good fist of the Covid-19 challenge.
Today the new management team outlined a strategic plan to increase system sales by 30% (at the midpoint) over the next few years to between £1.6 billion and £1.9 billion by opening over 200 new stores.
The company is aiming to ‘turbo-charge’ the collection business by doubling its market share.
JUICING SHAREHOLDER RETURNS
Domino’s generates strong cash flow as shown by the 73% increase in free cash flow last year and management have initiated a new capital allocation policy to ‘optimise’ future shareholder returns.
The company aims to return surplus cash to shareholders in the form of buybacks and dividends within the framework of keeping net debt to EBITDA (earnings before interest, taxes, depreciation, and amortisation) within a normalised range of between 1.5-to-2.5 times.
The company has announced a £45 million share buyback, representing around 3% of the market capitalisation. A final dividend of 9.1 pence per share was also declared today.
SCEPTICISM REMAINS
Domino’s has attempted to jump-start growth before, only to fail, so it’s only natural that there is a fair dollop of scepticism around current plans.
AJ Bell investment director Russ Mould commented, ‘the London-listed Domino’s has been pulling out of overseas territories after failing to make a success outside of the UK and Ireland, and a spat with franchisees remains unresolved.’
Today the company highlighted that average franchisee profitability grew 58% to reach a record £229,000 per store, representing a 30% margin.
The share price reaction appears to be giving new management the benefit of the doubt this time around.
