Berenberg labels Domino's recent share price rise 'overdone'
Analysts at Berenberg slightly raised their target price on 'sell' rated restaurant chain Domino's Pizza Group on Thursday, stating that the stock's rise in recent months was "overdone".
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Berenberg acknowledged that Domino's shares had "performed strongly" following its third-quarter update on 17 October, in which it announced a plan to exit its international operations.
Domino's noted the exit process had only just begun, something Berenberg said was likely to be "very complex" as it could well involve exiting each market individually.
"In our view, the aim to exit in an 'orderly manner' might limit the exceptional costs related to the process, but we also think it means it may take a long time to complete," said Berenberg.
"As such, international losses could weigh on financial performance for some time yet. In addition, how much cash the disposals will generate is unclear."
Although the German bank said the move would eventually remove one of the company's major problems, its analysts still think Domino's recent share price rise was overdone given there had been no detail on how or when the exit will be achieved.
While Berenberg did bump its target price on the firm from 200p to 225p, it also highlighted that the performance of Domino's UK business continued to deteriorate.
"Therefore, while we increase our price target to 225p to account for international losses eventually disappearing, we maintain our 'sell' rating on the basis of the myriad issues facing the standalone UK and ROI business."
Berenberg also said it continues to believe that Domino's ongoing dispute with franchisees will not be resolved without it either giving franchisees better contractual terms or providing "considerably higher" incentives for meeting volume targets and opening new stores.