Interactive Investor

Shares round-up: Aviva, Domino’s Pizza, ITM Power

16th December 2021 12:57

Graeme Evans from interactive investor

Buybacks are on the menu at Aviva and Domino's Pizza, while shares in AIM star ITM Power have surged.

Sell notes on Domino's Pizza (LSE:DOM) were ripped up and today replaced with “buy” ones after the delivery chain struck a deal with franchisees that it hopes will unleash stronger growth.

Shares jumped 25% to 431.8p as the FTSE 250-listed company finally resolved a long-running stand-off that had frustrated its ambitions in key areas such as national advertising, menu innovation and digital development.

The company believes that the agreement, which is for three years and has support from franchisees representing more than 99% of UK stores, will address its recent underperformance compared with other Domino's businesses elsewhere in the world.

It has committed to one-time capital investment of £20 million in areas such as app development and in-store innovation, in return for the franchisees delivering at least 45 new stores a year and their backing for new national promotional deals.

Chief executive Dominic Paul said: “Our franchisees are trulyworld-class, and we are looking forward to accelerating our growth together.”

Analysts at Liberum dumped their sell recommendation as they said the risk of an earnings downgrade has been removed.

They now have a “buy” rating based on confidence in a business model that should deliver high growth with the scope for regular cash returns to shareholders via dividends and buybacks. Peel Hunt also raised its recommendation to “buy” based on expectations for the company's price/earnings multiple to return to at least 20 times.

The potential for buybacks at insurer Aviva (LSE:AV.) is already well known after boss Amanda Blanc outlined plans last summer to return at least £4 billion to shareholders.

Today, she fuelled hopes in the City for an even bigger figure after raising an existing buyback programme from £750 million to £1 billion. Blanc will provide a further update on capital return and dividend plans at results in March, but for now is sticking by the £4 billion figure.

However, activist investor Cevian Capital believes Aviva should be able to return as much as £5 billion after eight businesses were sold for £7.5 billion as Blanc shifted Aviva's focus on its strongest and most strategically advantaged businesses in the UK, Ireland and Canada.

The disposals helped to reduce debt by £1.9 billion in the first half of the year, meaning that debt leverage is well below its sub-30% target at about 26%.

Shares rallied 1.5% or 6p to 402p, which is in line with where they have been since April.

Another popular stock with interactive investor customers is the AIM-listed clean energy business ITM Power (LSE:ITM), whose shares rose 7% after publishing a trading update.

The Sheffield-based hydrogen power equipment maker, which is worth £2.3 billion, reported a record contract backlog of 499 megawatts representing a 61% increase since September.

Chief executive Graham Cooley said the update was a “compelling endorsement” of its decision to raise further funds to increase capacity domestically and internationally to take full advantage of its fast-growing market.

He added: “Together with our partners, we believe we can gain a material market share as a result of our experience, expertise and capacity to help industry to decarbonise using green hydrogen.”

The company makes integrated hydrogen energy solutions for grid balancing, energy storage and the production of renewable hydrogen for transport, renewable heat and chemicals.

It joined the AIM market in 2004 but its fortunes accelerated after 2019's £58.8 million fundraising, which included investment by Linde and the formation of a joint venture to deliver renewable hydrogen to large-scale industrial projects worldwide.

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