Interim results from pizza firm DP Poland Plc (LON:DPP) showed it was continuing the good momentum it has built up in recent years as it reported growing sales and narrowed its losses.
Notably, the Domino’s Pizza franchise holder notched up its fifteenth consecutive quarter of double digit like-for-like sales growth.
In the six months to the end of June, the Domino’s Pizza franchise holder saw like-for-like sales rise by 28% compared to the same period last year, while total sales increased by 57% to £3.2mln.
The strong sales figures meant group revenue was up 70% compared to the first half of last year to £2.96mln, while the EBITDA (underlying earnings) loss was reduced to £728,397 (1H 2015: £773,591).
READ: Tasty sales help to narrow losses at DP Poland
What it does…
DP Poland has the exclusive right to develop, operate and sub-franchise Domino's Pizza stores in Poland.
Since the beginning of this year, six new stores have opened and three more cities have come on stream.
Currently there are 29 stores in five Polish cities including Warsaw, Krakow and Gdansk. Sixteen of these are corporately managed with the remaining 13 sub-franchised.
The company says it has a strong pipeline of new openings in the second half of this year, with one store ready to open and three more under construction.
What the boss says…
"Out of our six store openings so far this year I am delighted that three stores have been opened by two new sub-franchisees, in two new cities, taking the number of our sub-franchise partners to four,” said chief executive Peter Shaw.
“We saw more than a doubling of both corporate store EBITDA and commissary gross profit in the first half of 2016 driven by rapid sales growth and improvements in food costs.
“The continuing improvement in Group EBITDA losses will accelerate as the growth in overheads necessary for rapid expansion become proportionately less significant to accelerating sales,” Shaw added.
WATCH: DP Poland boss talks rising dough from sales growth and store openings in Poland
Outlook…
In terms of trading outlook for the second half of 2016, the AIM-listed company said sales in July and August “continued in the same vein” as the first six months of the year and it expects this to continue throughout the rest of the year.
“As distribution improves with more store openings and as our customer loyalty grows we believe that the growth of Domino's Pizza in Poland over the coming years will remain robust and uninterrupted,” DP said.
The company said that although difficult to predict on a macro level, it is confident that Brexit won’t have any impact on the Polish economy or the business itself.
What the brokers are saying…
There has been some underlying growth in protein prices but overall food costs/revenue improved as a result of increased volume discounts and the efforts of the procurement team.
Peel Hunt’s Ivor Jones says a number of factors make DP Poland appealing to investors, including the fact is on the path to profitability.
“The 1H16 results have not changed our view of the trajectory of profits but we believe it is clearer that the Group has a sustainable business well on the way to critical mass and, in due course, profitability.”
Jones also expects the standing DP Poland enjoys among its franchisees to rub off on potential investors.
“The third sub-franchisee opened their first store in April and their second in June; the fourth sub-franchisee opened their first store in August and two corporate stores have been sold to franchisees this year,” said Jones.
“We believe that the growing credibility of DP Poland with franchisees will increase its credibility with investors.”
Jones added: “DP Poland is now in seven cities, adding three this year. Continued expansion outside the capital validates our view that it can build a national business.”
What it’s worth…
DP Poland has enjoyed a solid 2016 with the share price more than doubling in the year so far.
The stock currently sits around the 50p mark, which gives DP Poland a market value of around £65mln.
Peel Hunt says that there is still some headroom for share price growth however, and thinks it can add as much as another 50%.
The broker has reinstated its target price of 75p, adding that trading momentum should “drive the share price further ahead”.