Berenberg reiterates 'sell' rating on Domino's

Fundamentally, Berenberg thinks Domino's new management is taking "a far more sensible approach" in its attempts to create value for shareholders, but still struggles to look past two large problems - the magnitude of competition and still unresolved franchisee disputes.

Speaking on the UK delivery market, Berenberg noted JustEat grew its UK orders by 96% in the first quarter and recently listed Deliveroo grew UK gross transaction value by 142%, while Domino's underlying growth was at just roughly 3% - "clearly" indicating it was "losing a lot of market share".

"While we expect the delivery market will continue to grow, our main concern is that Domino's may not be able to rely upon a rising tide lifting all boats forever – the remainder of the year is unlikely to be as buoyant as Q1 – and the level of competition it is facing only seems likely to intensify," said the analysts.

The German bank, which raised its target price on the stock from 250.0p to 300.0p, also noted that Domino's has argued that its collection business, which prior to the pandemic made up about 20% of revenues and 30% of orders, was almost entirely incremental to the delivery business, with the notion being that rather than being a beneficiary of lockdowns, the group was in fact a net loser given the collapse in collection it experienced last year.

"However, we struggle to agree," said Berenberg. "Whenever collection orders have recovered meaningfully, delivery growth has slowed, and vice versa. When plotting those quarterly data points since the start of 2020 on a chart, there is a clear inverse correlation, with an R-squared of 0.88."