Dominos Pizza Poland (DPP) - a proven global franchise, expensive but keep watching

Monday, Sep 26 2016 by

Dominos Pizza Poland (DPP)   49p   Mkt Cap £60m

DISCLAIMER: Usually I do my best to avoid investing in loss making companies, especially start ups with no track record. I made an exception for DPP about 3 years ago. I guess its my dirty little secret. Anyway I thought I’d share a few thoughts after looking at the recent interims.

Dominos Pizza is a GLOBAL PHENOMENON
I once took a couple of weeks looking at Dominos Pizza, given its success in the UK. I traced it back to its roots in the US in 1960. Then the move to franchise stores as well as own them and then it's international expansion. There are now over 12,900 Dominos Pizza stores globally. There are over 900 stores in the UK with plans to get to 2000. It is also very successful in France, Australasia, the Netherlands, Japan, India, Canada. And it's still growing fast with plans in all countries for further roll outs.

How does the franchise model work?
Each international market agrees a master franchise agreement with Dominos Pizza inc in the US. The master franchises can then either open stores operated by themselves (known as corporate stores) or attract sub-franchisees. Sub franchisees are typically entrepreneurial store managers who want to give it a go themselves and take on the risk of running a store. Every pizza and ancillary product sold has a royalty which must be paid to the Master franchise, whether they are sold in stores owned and operated by the master franchisee or by the sub franchisee. The royalty is around 4% for stores operated by the master franchisee and 6.5% for the sub franchisee. Part of this royalty is passed back to Dominos Pizza Inc in the US, part is retained by the master franchisee. In DPPs case it pays 3.5% of the 4% back to DPI in the US and retains either 0.5% from the corporate stores. For the sub franchisee stores it pays 3.5% back to DPI and retains 3%.. The sub franchisees are also required to pay 4% of turnover into a national advertising fund to promote Dominos Pizza in that country. So as the number of outlets grows in a country, so the national advertising fund grows.

Technology and innovation
The advent of the App has been a major bonus for Dominos, with over 2/3 of sales in Poland…

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DP Poland PLC is a United Kingdom-based holding company. The Company, through its wholly owned subsidiary DP Polska S.A., is engaged in the operation of pizza delivery restaurants. DP Polska S.A. has the exclusive master franchise in Poland for pizza delivery brand Domino's Pizza. DP Polska S.A. has the exclusive right to develop and operate and sub-franchise to others the right to develop and operate Domino's Pizza stores in Poland. The Company has approximately 20 Domino's Pizza stores in over five Polish cities, Warsaw, Krakow, Wroclaw, Gdansk and Szczecin, approximately 20 corporately managed and over 10 sub-franchised. more »

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1 Post on this Thread show/hide all

VegPatch 5th Oct '16 1 of 1

Small cash placing to raise 5% of the market cap at a c1.5% discount to last night's close. The proceeds will be use to increase the 2020 target from 80 to 100 stores. This is as I suspected when I wrote previously "The current target is for 80 stores by 2020. Maybe that could be exceeded but that would require a bit more growth cash, and as Polish banks are quite strict in their lending standards I would think this would have to come from investors."

I think this is a smart move and dilution is pretty small. Having said that management now needs to deliver (the pizzas...) on time and on budget. Also shares have been issued on a number of occasions. Granted this is the first instance for growth capital rather than keeping the business afloat. However it should now be well financed. Shares up nicely on the back of this.

I remain a holder


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