Domino’s Pizza Group PLC (LON:DOM) has been downgraded to ‘add’ from ‘buy’ by analysts at Peel Hunt following recent share price strength, however the broker said they believed there is a “strong case for the dividend returning” in the company’s upcoming full-year results.
In a note on Wednesday, Peel Hunt said they expected cash flow at the pizza chain “should be strong” and they expected relations with its franchisees to improve.
READ: Domino's Pizza downgraded by Berenberg over pressure from rivals via Just Eat, UberEats and Deliveroo
However, the broker reiterated their 375p price target, saying they expected the company’s interim results on August 11 to show a slight fall in earnings (EBITDA) “owing to a lack of volume growth…and a temporary increase in costs due to meeting tough operating protocols under lockdown”.
Peel Hunt added that they had not seen much evidence of franchisees passing the recent UK government VAT cut down to consumers, a development they said was “unlikely to help recent [like-for-like] sales”.
The broker also said the company’s share price value in relation to its Australian and US counterparts, Domino’s Pizza Enterprises Ltd (ASX:DMP) and Domino’s Pizza Inc (NYSE:DPZ), “remains large” despite all of the firms facing “similar market conditions and competition”.
Shares in Domino’s were up 0.4% at 328.8p in lunchtime trading.