Canaccord remains confident on Domino's despite backroom drama

Broker Canaccord reiterated its ‘buy’ rating for Domino’s Pizza on Monday despite reports of souring relationships between the company and some key franchisees.

An article in The Sunday Times claimed that there is"growing hostility" from the takeaway giant’s most prominent franchisees towards chief executive David Wild due to rising costs and pressure to open more stores. Some 11 of the largest franchisees have set up an association to represent their interests.

The company had 150 franchisees in 2006 but now has around 80, with Moonpal Singh Grewal's and Surinder Kandola’s franchises accounting for 42% of total UK sales in 2016.

Canaccord's analysts maintained their target price of 425p per share as it expects Domino’s to open approximately 70 further stores over the full year. "Store openings are a good measure of franchisee well-being."

Further speculation has arisen, surrounding the exit of Rachel Osborne, the third finance director to leave Domino’s in three years.

Despite the drama behind the scenes, Canaccord analysts described the FTSE traded company as having had a “good start” to the year due to a 7% increase in like for like sales in the first quarter after experiencing minimal damage from the ‘beast from the east’ over winter and seeing a “strong trading period” over Easter.

Dividend per share is seen as increasing 10% to 9.9p in 2018, before a further 10% increase in 2019.

The analysts also speculated that an influx of orders caused by the World Cup would help to offset the seasonal dip that Domino’s would normally experience over warm summer months.

Domino’s Pizza’s shares were down 2.62% at 320.10p at 1138 BST.