Investment Column: Valuation makes Domino's hard to digest


Our view: Hold

Share price: 427.2p (-18.8p)

Investors in Domino's Pizza appear to have suffered from a bout of indigestion since its shares hit an all-time high of 586p in the first week of January.

The pizza group's shares fell back further yesterday after it posted a sharp slowdown in its underlying sales for the 13 weeks to 27 March. Many retailers would give their right arm for the 4.2 per cent rise in like-for-like sales seen at Domino's 607 mature stores, but the increase paled in comparison with the mouth-watering growth of 10.5 per cent seen during the same period last year.

Domino's performance in the Republic of Ireland has been dire this quarter. Sales slumped by 10.5 per cent, and the company blamed this for the decline in its growth (though the Republic accounts for only 7.4 per cent of the chain's total sales). The operator of 672 outlets also said its UK sales would have been higher if the increase in VAT had been taken into account.

That said, we believe that the wider slowdown in consumer spending has finally caught up with Domino's, which has increased sales, profits, dividends and its share price strongly over the last five years.

Analysts at Peel Hunt have forecast a 12 per cent rise in pre-tax profits this year. Indeed, the fundamental reasons for backing Domino's remain intact, notably that its competition has failed to keep pace in recent years with its marketing, quality of service and expansion.

The company has also shown itself to be a formidable online operator, with e-commerce accounting for more than 39 per cent of UK sales in the last 13 weeks. Investors should also note that Domino's is already benefiting from an increase in orders from mobile devices. No doubt the number of orders made in this way will get a further boost once Lance Batchelor, the former head of Tesco Mobile, joins as deputy chief executive this summer.

In fact, the only real problem we have with the ingredients at Domino's is its spicy earnings valuation of 22 times forward earnings. For this reason, we suggest that investors let the price cool down a little before buying further shares.

Charles Taylor Consulting

Our view: Buy

Share price: 140p (-19p)

Charles Taylor Consulting (CTC), it is worth pointing out, has nothing to do with the former Liberian president on trial at the Hague, and everything to do with the business of insurance.

The group started life as a coal merchant in the 1840s before moving into managing the Standard Steamship Owners' Protection and Indemnity in 1885. Today CTC, which listed on the London Stock Exchange back in 1996, has four operations, the biggest of which are management services for mutuals and adjustment services.

Revenues were up slightly from £96.6m in 2009 to £99.1m last year, but the company admitted that 2010 had been difficult. Pre-tax profits fell by a fifth to £12.5m and the company cut its dividend in half, saying it needed greater financial flexibility to re-invest. The headline figures in the company's full-year results were in line with the house broker's hopes, though the market did not appear to be pleased and the stock fell to levels not seen since the group listed.

That apart, the company's chairman, Rupert Robson, believes good things are in store once the newly announced chief executive, David Marock, takes up that role in the summer. The year may have started slowly for Charles Taylor, with a pretty mixed performance across the board, but trends may be moving in the company's favour.

Mutuals are more profitable, there is a more favourable regime in the UK, and business is likely to pick up after the tragic earthquake in Japan.

Moreover, with an undemanding forward earnings multiple of less than seven times, we think this stock may be worth a punt.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
Friends is celebrating its 20th anniversary this year
tvSeries celebrates 20th anniversary
News
news
Life and Style
Jack Cooksey goes for the grand unveiling - moments before dropping his new iPhone 6 on the floor
iphone launch
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Liam Neeson said he wouldn't
tv

Liam Neeson's Downton dreams

Sport
Yaya Touré (left) and Bayern Munich’s Spanish defender Juan Bernat
football
Arts and Entertainment
A spell in the sun: Emma Stone and Colin Firth star in ‘Magic in the Moonlight’
filmReview: Magic In The Moonlight
Sport
A 'Sir Alex Feguson' tattoo
football

Arts and Entertainment
Ben Whishaw is replacing Colin Firth as the voice of Paddington Bear
tv

Thriller is set in the secret world of British espionage

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Audit Manager Central Functions

To £85,000 + banking benefits: Saxton Leigh: You will be expected to carry out...

Credit Risk Audit Manager

Up to £90,000 + benefits: Saxton Leigh: Credit Risk Audit Manager required to ...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week