Big day for Domino’s Pizza shares, optimism at WH Smith

Two household names have operated through much of the pandemic, and there is demand for the shares. 

Fast-food takeaways continue to be on the minds of investors after Domino's Pizza (LSE:DOM) stole back the limelight from Deliveroo with a FTSE 250 leading results-day performance.

Shares jumped 9% as the delivery chain reported “exceptional” trading over the new year period, including its best ever sales week. Underlying profits were also £2.4 million higher at a better-than-expected £101.2 million in 2020, despite incurring £9 million of Covid-19 costs in order to help the company's franchisees to trade safely.

The stronger result emerged as investors consider their options on the potential retail float of restaurant and grocery delivery firm Deliveroo, which could be valued as much as £7 billion when it makes its planned stock market debut in the next month.

Lockdown restrictions have been favourable for Deliveroo, although for Domino's the delivery boom has been partly offset by considerable disruption to the collections market.

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Once restrictions ease, chief executive Dominic Paul believes there's scope to “turbocharge” the collections side of the business as part of his medium-term ambition for overall system sales of between £1.6 billion and £1.9 billion. The figure was up 11.4% to £1.35 billion last year.

Ideas for achieving this target include the roll-out of in-car collection, which Domino's hopes to have at 450 stores by June, and improving the average delivery time to below 20 minutes from just under 25 minutes currently.

Progress will also depend on enhancing digital and marketing capabilities, as well as resetting the company's relationship with franchisees, 70 of whom operate over 1,200 stores. Domino's has made an “attractive offer” to the franchisees concerning their role in the company's growth plans, although no agreement has yet been reached.

Analysts at Liberum questioned the timing of the new delivery targets when franchisees have still to agree to the growth plans. The broker retains its ‘sell’ recommendation but has increased its price target to 250p from 180p.

The shares were trading at 339.8p today - valuing Domino's at just over £1.5 billion - after rising 28.6p in the wake of the annual results. Paul, who previously ran coffee shop chain Costa, also announced a 9.1p a share dividend worth £43 million for payment on 4 May and disclosed plans for a £45 million share buyback.

He added: “In my first year with Domino's, it has been clear to me that we have a great platform to build from — a uniquely powerful brand, high digital participation and outstanding people and franchisees.”

WH Smith shares can keep rising

Trading optimism was also in evidence at WH Smith (LSE:SMWH) today, despite its travel division still only generating a third of its normal sales. Confidence has been boosted by online trading in the high street business, which has remained open during the lockdown and was trading at about 84% of its 2019 level in February.

That's been beneficial for the company's monthly rate of cash burn, which is now likely to be between £12 million and £17 million in the first three months of the year, compared with previous guidance for between £15 million and £20 million.

The retailer's banks also remain supportive after extending the maturity date on two existing £200 million loans through to October 2023 and agreeing to new minimum thresholds on liquidity covenant tests due in August and February next year.

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Shares were today 14p higher at 1,918p, having already recovered to their highest level since last February on the back of hopes for a summer re-opening of travel stores. The widely-held stock finished 2019 at about 2,600p.

Kate Calvert, a retail analyst at Investec Securities, believes that shares are capable of returning to 2,450p, adding that the company is well placed to resume its long-term double-digit growth story once the pandemic is over.

She said: “Little has changed structurally to impact WH Smith's ability to return to close to historic sales/profit levels.”