RBC highlights 'strength' of Domino's Pizza Group's business model

Analysts at RBC Capital reiterated their 'outperform' recommendation and 350.0p target price on shares of Domino's Pizza Group, highlighting the fact that it was their only outperform-rated stock in the UK pubs and restaurants space.

The sale of its international businesses in the first half of 2020 would put paid to a year in 2019 that was best forgotten, the analysts said.

Yet while the company's strategy to diversify geographically had destroyed roughly £75m in shareholder value, its ability to grow and maintain profitability despite a dispute with franchisees, rising costs, and heightened competition from consolidators underlined the strength of its business model, they explained.

Life-for-like sales were 3.9% higher in the fourth quarter excluding splits with profits in the UK and Republic of Ireland coming in at £102-104m, against £101m in 2018.

Furthermore, the franchisees appeared to have limited power in their dispute and sterling strength would help offset part of the hit from the hike in the National Living Wage, as many of its raw materials were sourced in Europe.

And the pace of new store openings - at 32 in 2019 - was enough to maintain growth.

RBC estimated the disposal of the international operations would raise £15m on a net basis, including £10m of trading losses.

Domino's was next set to update shareholders on 5 March.