viewDomino's Pizza

Domino’s can’t keep on raising prices to drive growth, warns UBS as it downgrades to 'sell'

To offset sluggish like-for-like growth, Domino’s has put its prices up, but it can’t do that forever, says UBS, especially given how cash-conscious consumers are

domino's delivery driver
Domino's risks driving away customers if it becomes too pricey

Domino’s Pizza Group PLC (LON:DOM) shares were being sent back on Friday after the pizza delivery giant was downgraded to ‘sell’ by UBS.

Alongside their recommendation, analysts at the Swiss bank also cut their price target down to 230p (from 245p).

READ: Just Eat shares choked as Amazon leads US$575mln Deliveroo funding round

The chin scratchers said they had taken a “more cautious stance” on the outlook for Domino’s after looking at their Spend Tracker, which suggested the company was losing ground to its rivals.

The company used to be a dominant player in the online food delivery market, but people are increasingly downloading the apps of Just Eat PLC (LON:JE.), Deliveroo and Uber Eats.

In fact, so far this year, of all the mobile food delivery app downloads, more than 80% have been for the aggregators, whereas only 11% have been downloads of the Domino’s app.

UBS also has concerns over pricing. Domino’s latest trading update showed that it was putting up prices to help drive like-for-like growth, which UBS doesn’t think is sustainable, especially given growing competition and a more cash-conscious consumer.

Hiking prices can only work for so long

“We believe the data indicates that the competitive backdrop continues to intensify, which makes a competitive price position even more important,” it said in a note to clients.

“At this stage, we believe Domino's are at risk of ticket price inflation causing a more structural slowdown in demand (and hence volumes), which we now see as a growing risk.”

UBS cut its underlying earnings forecasts for 2019 by 6%, which it said largely reflected “weak trading trends internationally and lower UK like-for-like growth forecasts”.

Shares fell 2.1% on Friday morning to 249.3p.

Quick facts: Domino's Pizza

Price: 301.7038 GBX

Market: AIM
Market Cap: £1.39 billion

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