Credit Suisse lowers LFL forecasts for Domino's, cuts target price

Credit Suisse cut its target price on shares of Domino's Pizza to account for lower than expected growth in like-for-like sales in the UK and after the company decided to take control of its Scandinavian associates earlier than planned.

Thus, while the pizza-maker's fiscal year 2016 results were in-line, softer current trends were now in focus, analysts Tim Ramskill, Julia Pennington and Giulio Pescatore said.

LFL sales in Britain were ahead by 4.9% in the fourth quarter of 2016, below Credit Suisse's estimate for a rise of 6.3%.

Furthermore, over the nine weeks year-to-date UK LFLs were running at just 1.5%, albeit with a 240 basis point headwind from store splits.

In Scandinavia, the Norway business had bought the number three player and Domino's had moved to take a controlling interest in its Nordic associates sooner than expected.

Combined, those two changes led Credit Suisse to pare its earnings per share estimate for 2017 by 7%, bringing it in-line with the analyst consensus.

The broker also lowered its medium-term assumption for the rate of growth in LFLs from 5% to 4% noting that the impact from more splits should be lapped within the year.

"The clear focus is likely to be on LFL growth with the next update not due until the interim results in late July."

Following on from all of the above, the target was cut from 475p to 455p but the recommendation was kept at 'Underperform'.