Broker snap: Broker has had enough of Domino's Pizza

12th Jul 2010 13:13

Pizza delivery firm Domino's Pizza had a strong second quarter, Panmure Gordon concedes, but not strong enough to persuade the broker from changing its advice to exit the shares.The broker has upgraded its full year earnings estimates by 4%, however, and now predicts profit before tax of £35m, a little above the £34.11m market consensus prevailing before this morning's half-yearly report, and earnings per share of 15.7p, versus consensus of 15.41p.As a result of the change to the profit forecasts the price target is increased to 314p from 300p, but the stock still remains a "sell" in Panmure Gordon's eyes, as the broker is expecting a dramatic slow down in the growth of like for like (LFL) sales in the second half of the year. The broker's earnings estimates are based on expectations of 7% LFL sales growth in 2010 over 2009. compared to "an implied +16.9%" growth in LFL sales in the second quarter. "We continue to expect LFL sales growth to slow dramatically in H2 [second half] principally reflecting the lapping of the Two for Tuesday campaign which we believe contributed 2-3% points to Q3 [third quarter] 2009A [actual 2009 figures] LFL sales growth of 10.8%," Panmure Gordon explained. "The biggest impact appears to have been in the first few weeks of the promotion when in two consecutive weeks the number of pizzas ordered on a Tuesday increased to over 6,500 (versus 2,000 historically) and we therefore believe the group may struggle when it laps these tough comparatives in July and August," the broker added.