DOM

KBC’s Paul Hickman sees comfort in the pizza chain as hard times see consumers eat in

by Dan Coatsworth

A strong track record of surviving during good and bad times means fast food retailer Domino’s Pizza (DOM) should ride out the current economic downturn, says KBC Peel Hunt analyst Paul Hickman. Upgrading the stock from ‘hold’ to ‘buy’, he says Domino’s deserves its 15% premium rating to the restaurant sector and believes the share price should rise, supported by forecast

double-digit earnings growth.

The company achieved 11.4% like-for-like growth in the first half of 2008. It only needs 4.6% same-store growth in the second half to hit Hickman’s full-year target of 8% growth. Last summer’s washout weather benefited sales as people ordered in pizza rather than brave the elements to eat out. Domino’s has yet to comment on third-quarter trading, but Hickman is confident the terrible weather experienced this August should benefit Domino’s.

Underpinning Hickman’s positive stance is evidence of trading down. New customers have increased by 19% in

volume, live in more affluent areas, and are spending 37% more than existing customers, at roughly £18.50 against £13.50. Existing customers who spent just £12 to £13 on average are doing so less frequently. The net effect is a 3% volume increase. ‘If this is indeed evidence of trading down, then it is the best possible attribute going into the downturn,’ says the analyst.