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Domino's Pizza downgraded by Berenberg over pressure from rivals via Just Eat, UberEats and Deliveroo

The analysts expect competitive pressures to lead to negative earnings growth in 2020 and “lacklustre at best” thereafter

Domino's Pizza Group PLC -

Domino's Pizza Group PLC (LON:DOM) is likely to face mounting pressure from competitors that are more focused on growth and less on returns, says Berenberg. 

“We do not think Domino’s Pizza is a bad business: it has a strong brand, solid returns on capital, and is well rated by its customers,” analysts at the bank said in a note on Friday.

However, the analysts expect competitive pressures to lead to negative earnings growth in 2020 and “lacklustre at best” thereafter.

Existing competition from smaller independent pizza restaurants is predicted to grow due to the effects of coronavirus lockdown boosting demand for takeaway aggregators such as Just Eat Takeaway (LON:JET), UberEats and Deliveroo.

In the wake of the lockdown, the analysts said they expect “more restaurants will consider providing delivery services as a way to supplement their income while in-store capacity is constrained by social distancing measures – if indeed they have not begun to do so already”.

Even though online data suggests that Domino’s experienced a COVID-19-related boost from mid-March to mid-April, the company admitted that volumes have actually been down compared to last year, even including the peak lockdown boost. 

“With restaurants closed and delivery competition more limited during that spell, we would consider that performance a worry for the future,” the analysts said.

They added, “we struggle to justify the size of the stock’s current valuation gap versus most leisure peers”, and downgraded the recommendation to ‘sell’ and kept the price target at 250p.

Quick facts: Domino's Pizza Group PLC

Price: 331.4 GBX

LSE:DOM
Market: LSE
Market Cap: £1.55 billion
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