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Morning Briefing for pub, restaurant and food wervice operators

Wed 4th Oct 2017 - Update: Domino’s, Jamie’s Italian, Vianet
Douglas Jack – Domino’s is building momentum: Peel Hunt leisure analyst Douglas Jack has issued a ‘buy’ note on Domino’s shares, arguing that sales momentum is staring to build. Issuing a target price of 400p, he said: “We believe Domino’s like-for-like sales should be starting to strengthen. The company should have benefited from poor weather and softer comps in Q3, but the self-help initiatives of new innovation, pricing and advertising only started towards the end of the quarter, benefiting Q417 and H118 more than Q317. We believe like-for-like sales should start to pick up in Q3, from Q2’s 1.6%, benefiting from 24% greater rainfall (vs 17% less in Q2) and a 6.2% comp (versus 13.3% in Q2), all on a pre-splits basis. Within September, the new advertising campaign started at the end of week three, and has generated a strong uplift in week-on-week website activity. Combined with new pricing deals and app payment methods, this implies positive momentum in late Q3. The £9.99 large pizza offer (which we doubt the smaller competitors could sustain for long) did not start until early September. £5/head (with no delivery charge) is a very different proposition to Deliveroo’s full restaurant prices plus delivery charge (Domino’s does not add a delivery charge). Apple Pay commenced on 7 August. GPS Tracker (which added 4-5% like-for-like sales in Australia) should now be in 75 stores and is being rolled out at a rate of 12 stores per week. It should be in 200 stores at year end. With UK franchisees accelerating expansion (from 80 to 90 new stores this year), the need for further UK JV deals should be limited. This, combined with the Warrington commissary build nearing completion, should result in capex dropping sharply in 2018E. Thus, we estimate the company could buy back £80m of shares if it were to reach 1.25x net debt/Ebitda by 2019E. We expect to hold our full-year forecasts after Tuesday’s Q3 update. These assume that like-for-like sales rise by 3% pre splits (1% post; like-for-like sales are now announced on a pre-splits basis), and UK margins fall for the first year ever. On similar assumptions, we forecast PBT reaching £190m in 2024E. Over the last two weeks, Domino’s has bought back just 1.5m shares, and the shares have surged by almost 15% despite the c15% stock on loan position remaining. Thus, what we said before remains intact: “if like-for-like sales start to accelerate and the buy back has to compete with short covering on the equivalent of 15% of the equity base, then the upward squeeze on the share price could be considerable, in our view”.”

Simon Blagden steps down at Jamie’s Italian: Simon Blagden has stepped down as head of Jamie’s Italian to be replaced by Jon Knight, the managing director of the group’s international operations. Knight joined the business in April last year after five years in retail with Al Khayyat Investments of Dubai and Retail Arabia International. Prior to that, he had spells at Marks & Spencer, Safeway and Asda. 

Vianet makes Vendman acquisition: Vianet Group has bought Vendman Systems, a leading Enterprise Resource Planning and mobile software provider for unattended retailing, for a total consideration (including an earn out), of up to £4.25 million, payable in cash. Stewart Darling, chief of Vianet Group, said: “We are delighted to announce this significant strategic acquisition of a valued existing partner, and we look forward to accelerating business growth with the highly experienced and respected Vendman team. I believe the combination of Vendman ERP and mobile software products with Vianet IOT connectivity, data analytics and contactless payment solutions creates an unparalleled portfolio with strong presence in the UK and Europe. This is positive news for both sets of customers as we continue to extend our capability, delivering increased value to the unattended retail sector, and in doing so accelerating our pan European growth plans.” James Dickson, chairman of Vianet Group, added: “This is an important acquisition which greatly advances our strategy for growth and is a hugely complementary fit for our business on several fronts and takes it to the next level. The fact that Vendman has chosen to deal with Vianet is a strong endorsement of our capability, vision and strategy for the Smart Machines division. As businesses increasingly seek and rely on actionable data, business intelligence and insights, Vianet’s expansion of proven IOT capability shows that we are well placed to deliver compelling results for our customers and accelerate our own growth in what are rapidly evolving markets.”

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