Josh Shores of Southeastern Asset Management presented his in-depth investment thesis on Domino’s Pizza Group (UK: DOM) at Best Ideas 2020.
Domino’s Pizza Group (£1.4 billion market cap; ~£613 million 2019E revenue) owns, operates, and franchises pizza stores in six European markets. The company has 1,261 stores, of which 90% are franchised and 10% are corporate-managed. DOM is a simple business — makes dough and sells it to franchisees along with other ingredients and essentials. The underlying franchise is strong, with mid-single digit like-for-like sales growth and significant growth potential in core markets in the UK and Ireland.
A failure to hire the right people and manage key franchisee relationships created mistrust and the inability to extract the full potential of the underlying business. Poor understanding and handling of the concerns of franchisees led to a breakdown in trust. New management and board members can address this breakdown. Three change agents joined the board in 2019, while longstanding chairman Stephen Hemsley departed the company. According to Josh, immediate steps can be taken to solve the franchisee impasse, return the company to strong long-term growth, and drive a rerating by the market.
Josh believes DOM could be worth 2x its recent market cap based on potential growth, ROIC, cash generation ability, and trading multiples of comparable peers (EV/EBIT of 13.4x vs. comp group average of 20.8x; P/E of 14.3x vs. 25.7x; EV/EBITDA of 11.6x vs. 17.2x; and EV/sales of 2.2x vs. 5.7x). Domino’s entities that are publicly listed in the US (DPZ) and Australia (DMP) trade at multiples that are in line with the peer group (which includes Sonic deal multiples, McDonald’s, Wendy’s, and Yum Brands).
The full session is available exclusively to members of MOI Global.
Members, log in below to access the full session.
Not a member?
Thank you for your interest. Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:
About the instructor:
Josh Shores is a co-portfolio manager for Longleaf Partners International Fund and a member of Southeastern Asset Management’s Executive Committee. After seven years in Southeastern’s London office, Josh is now based in Memphis and focuses on Non-US investments. He joined Southeastern in 2007 after working at Smith, Salley & Associates in Greensboro, NC and Franklin Street Partners in Chapel Hill, NC. A University of North Carolina graduate, Josh holds bachelor’s degrees in Philosophy and Religious Studies. He received his CFA designation in 2006.
About The Author: MOI Global Editorial Team
The MOI Global Editorial Team, led by John Mihaljevic, CFA, includes community builders, event organizers, writers, editors, research associates, security analysts, and fanatical member support advocates. Our sole purpose is to serve the members of MOI Global as well as we possibly can in order to help them learn, invest intelligently, and build lifelong friendships with like-minded people.
Who is MOI Global? In recent years, The Manual of Ideas has expanded to become more than simply “the very best investing newsletter on the planet” (Mohnish Pabrai). We are now a thriving global community of intelligent investors, connected through great ideas, thought-provoking interviews, online conferences, live member events, and much more.
Members of MOI Global enjoy complimentary access to a growing array of resources and content related to the art of intelligent investing. Members also enjoy preferential access to selected offline events as well as exclusive access to other events hosted by MOI Global, including the Zurich Project Summit, the Latticework Conference, and Ideaweek.
More posts by MOI Global Editorial Team