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#4 $DMP - A shorter article, a reminder of why it is an inferior business to $DPZ, but it may very well not matter for why it is worth considering
There are 14x equity analysts covering $DMP, so my goal is to not run a better "target price" than them. My goal is (a) contrast $DMP to $DPZ, (b) explain there they are/not under-earning & conclude on a value that I would buy in at
Reminder of previous analysis
18-months ago, I did a side by side comparison of $DMP and $DPZ (the US parent) and the main points were:
SSS Growth: On a medium term basis, when you look at SSS Growth both companies are on par. Disregarding outlier years like 2020 and 2022, DPEZ (US) has mid-single digits SSS; perhaps 6-8%, like $DMP
Margin: However, $DPZ has the much better margins because it is the head franchise, not the mid-level master franchise
What has changed since then - thoughts on recent results
Whilst the market valuation of $DMP is well covered, the receent headslines have been around:
Poor guidance given weak SSS in the first 7 weeks of the new year (particularly Malaysia)
Short-term reduction in margin due to a spike in food and labour costs (which is passed on eventually)
Whether Dom Meij is selling his shares or not
However personally, I think the more important parts to focus on are:
reducing the number of corporate stores as a blend of the total platform noting that many of these are in Asia
reducing leverage levels down to c.40% (c.1.5x EBITDA)
completing the restructure program (expected to yield a $30mm EBIT benefit)
fine-tuning the marketing spend; particularly in Asia (ex Japan)
ensuring the uptick in share based payment is yielding better results
Valuing the company today
As mentioned, this one is well covered, so I will defer to 4 x simple charts to demonstate what I do & do not like about $DMP
Compared to historical averages, $DMP is trading well below its average multiple
They probably dont need to do another equity raise despite the low cash balance (c.$90m) given the lower debt levels
NPAT margin historically has been closer to 7% (noting that the Asia corporate stores do alter the margin) however
Current margin is 3.9% post one-off items (or 5.1% excluding this)
On similar earnings & 6.5% margin would imply a c.17.5x multiple which is closer to Collins Food which probably fairly priced for an inferior company
Conclusion: The $DMP business is not worth an infinite amount. The way I see it, this company is probably worth 17-18x forward NPAT and this means 1 of 2 things either
(a) buying it today ($2.7bn market cap) and assuming 6.5% NPAT margin as a regular run-rate or
(b) waiting for evidence of a higher margin (likely through a re-rate in Malaysia and SEA) and some rightsizing of Japan/France
My preference is to play both; I think that there is still downside in the short term as some more downgrades are possible
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