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Domino’s Pizza cut to sell as Citi says risk/reward skewed to the downside

The bank highlighted the pizza chain's "cautious tone around near-term trends, franchisee relationships and the international disposals” in its first half results, which pointed more towards the negative going forward

Domino's

Domino’s Pizza Group PLC (LON:DOM) has been downgraded to ‘sell’ from ‘neutral’ by Citi, who said despite a share price rise following the company’s half-year results earlier this week the pizza chain’s risk/reward profile was “more skewed to the downside”.

“Since its recent trough, the Domino’s share price is up [around] 20%, with almost half of that coming this week post 1H results. While there were some snippets of encouraging commentary from the results, and it was a good chance to hear from the new management team, there was also a more cautious tone around near-term trends, franchisee relationships and the international disposals”, the bank said in a note on Friday.

READ: Domino’s Pizza to pay delayed final dividend but skips interim distribution

Analysts also highlighted that the company did not announce an interim dividend, which when viewed in the context of the share price moves and valuation levels pointed downwards, however their target price on the stock was reiterated at 290p.

Domino’s is currently embroiled in a dispute with its franchisees over issues including rent costs and payments, although in its results the company said it has increased communication with them throughout the pandemic and accelerated payment dates and deferred some property rents.

Shares in Domino’s were down 4.6% at 341p in late-morning trading.

Quick facts: Domino's Pizza Group PLC

Price: 365.2 GBX

LSE:DOM
Market: LSE
Market Cap: £1.69 billion
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