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How these two men used $5 pizzas to create an $8 billion fast-food juggernaut


Fast-food retailer Domino’s is closing in on a record $100 a share handing its chairman Jack Cowin a fortune of almost $1 billion in a year in share price growth.

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His managing director Don Meij has also added about $70 million to his stake.

In a bizarre year when the pandemic made and lost fortunes, Domino’s has been a clear winner and its shares could rise further, despite a drop this morning from its high at $96.50. Its market value is now above $8 billion and its price to earnings ratio is now at 58 times, which meant investors viewed as a growth stock.

Its rise is a hot topic in the internet chat rooms where critical stock analysis is not that common, but on Hot Copper’s page, “Fat Pat’’ summed up the Domino’s surge after boasting he got in at $9 a share.

“Not bad for a mob that makes a living from $5 pizzas,’’ he said.

But analysts stress the company has not just been a lucky beneficiary of lockdowns. Morgans Wealth Management analyst Josephine Little said the company had seen sales growth rates like the current one in previous years and there was now a well-defined global growth strategy at play.

Essentially, the pandemic accelerated what was already underway.

Cowin, who brought KFC to Australia and also controls Burger King’s Hungry Jack’s, told shareholders in November that 2020 had been the most extraordinary period of change he had witnessed in five decades of business.

That period of change has seen companies in the chain store and fast food sector boom.

Analysts think sales growth could slow as pandemic restrictions ease but there was still significant momentum for the company and it would eventually morph into a company where a majority of its sales would be offshore.

Wilsons Advisory head of Australian equities John Lockton said there was still upside for investors in the stock.

“We suspect that when coupled with increased digital delivery (driving repeat orders and higher basket size) that the market is potentially underestimating the earnings potential for Domino’s over the next few years,’’ he said.

“Investors view Domino’s as global rollout story across Australia, Europe, and Japan, capable of growing earnings in the mid-teens over the next few years, likely beyond.

“The market has always priced Domino’s at a premium to the market on an earnings multiple basis given it is capital-light, with a return on equity is almost three times higher than that of the market ( at about 45 per cent).

“The recent increase in the share price puts Domino’s on a similar multiple to Domino’s Pizza Inc (the Master Franchisor) and Domino’s Pizza PLC  (London ), despite Domino’s Australia having stronger earnings growth over the next few years.

“There will likely be some slowing of Australian sales growth as social restrictions ease. How much the Australian sales slow is open for debate, but we do note that pizza as a category has taken market share over the last 12mths. We suspect at least a third of the Covid-19 sales boost sticks around driven by digital, contact-less delivery and the new customers DMP has picked up.

“Longer term the more powerful driver of Domino’s is actually Europe and Japan. In both geographies, store count can double into the end of the decade. We think more than 70 per cent of DMP’s earnings will be offshore-based by full-year 2023.’’

Morgans’ Josephine Little said what was exciting people at moment was that it had a profitable network of franchisees and that usually meant they were willing to take on more stores, which was a key driver of growth.

“I would not go as far to say they were a material beneficiary of Covid. Their sales rates have been good but we have certainly seen like this in the past when we have not been in a global lockdown,” she said.

“The company is trading in excess of our (share price) target, but we still have a positive view on the stock.

“We think the model is looking better placed from a holistic perspective than in the past three-plus years.”

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