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DP Poland PLC: DEEP DIVE
OVERVIEW

DP Poland teams with aggregator in one of the last large high-growth takeaway markets

In 2018, DP Poland’s system sales rose by 24% to 72mln Polish zloty (PLN) from PLN 58mln in 2017, despite a tough second half to the year as aggregators took a bite from its business
Polish pizza
OVERVIEW: DPP The Big Picture
Poland is one of the last large high-growth takeaway markets left in Europe, according to the group’s chief executive, Peter Shaw
  • Operates the Domino’s Pizza master franchise in the country

  • Poland one of the last large high-growth takeaway markets

  • 2018 revenue rose to £12.37mln from £10.38mln in sterling terms

  • Inks deal with country's largest takeaway delivery aggregator, Pyszne

 

What they do:

DP Poland Plc (LON:DPP) operates the Domino’s Pizza master franchise in the country.

Poland is one of the last large high-growth takeaway markets left in Europe, according to the group’s chief executive, Peter Shaw.

How they are doing:

DP Poland unveiled a partnership with Poland's largest takeaway delivery aggregator, Pyszne (Takeaway.com) when it reported full-year results on 26 March, having warned earlier in the year that it saw increased competition in the second half of 2018 from the country’s two main delivery aggregators.

In 2018, DP Poland’s system sales rose by 24% to 72mln Polish zloty (PLN) from PLN 58mln in 2017, despite the tough second half to the year.

On a like-for-like basis, adjusted for delivery splits (i.e. new outlets cannibalising the sales of nearby outlets), system sales were up 6% year-on-year.

The group's 2018 revenue rose 18% to PLN 60mln from PLN 50mln in 2017, or to £12.37mln from £10.38mln in sterling terms.

Its underlying loss (LBITDA) widened slightly to £1.92mln from £1.78mln in 2017 (using average exchange rates), as a result of the lower than expected sales in the second half of the year.

The loss before tax (using actual exchange rates) deepened to £3.79mln from £2.63mln and included provisions for impairments against leasehold improvements relating in part to possible store closures.

Last year, a number of the company's corporate stores were identified as 'underperformers' and plans were put in place to turn those performances around including discussions the possible sale of some of these stores to sub-franchise.

What the boss says: CEO Peter Shaw

"In spite of a challenging second half to the year, we achieved a 24% increase in system sales and significant growth in both corporate store EBITDA and commissary gross profit in 2018.”

“Understanding the external factors that negatively impacted sales growth, namely the unusually warm and dry weather and unprecedented levels of advertising spend by the two main delivery aggregators, has informed our sales and marketing response in 2019."

Blue Sky:

Peel Hunt resumed coverage on DP Poland with a ‘buy’ rating in the wake of the pizza franchise operator’s 2018 results, saying that a “normal summer would be the icing on the pizza.”

The City broker’s analysts pointed out that the group’s results were in-line with the group’s guidance released in February with the launch of a share placing, albeit “materially held back by intense marketing competition and the summer heatwave.”

They noted that delivery order aggregators spent heavily on advertising in a battle for market share in 2018, resulting in a loss of share for DP Poland despite its own marketing efforts, with the impact exacerbated by unusually hot dry weather – not conducive for pizza rating – through much of the year and in the second half in particular.

However, the analysts added, comparatives from April should be easier as that was the start of the hot, dry weather in 2018, and they expect the group’s targeted marketing activity to begin to pay off.

They concluded: “DP Poland is not expected to be cash flow break even until 2022 which means that valuation remains somewhat conceptual.”

Peel Hunt has a 15p price target on DP Poland shares, which currently trade at 7.75p each, which would put them back over levels last seen in February.

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DP Poland PLC Timeline

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