Shore Capital cites challenging consumer backdrop for Domino's

(Sharecast News) - Shore Capital has reiterated a 'buy' rating for Domino's Pizza ahead of its interim results next month, but said it was taking "a more cautious stance" given the subdued consumer backdrop. At the end of April, when Domino's last updated the market, the pizza delivery chain reported slower-than-expected like-for-like sales growth in the first quarter, up just 0.5%.

Following on from that, Shore Capital highlighted an unplanned trading update from bakery chain Greggs last week, which cited weak footfall in June due to the hot weather. While Domino's is less impacted by weather, since the majority of its orders take place in the evening, the broker reckons that the business is not completely immune to the challenges that Greggs has been facing.

Meanwhile, recent "persistent negative" consumer confidence figures from market research firm GfK, Shore Capital said, along with five straight months of decelerating family spending power, as shown by the Asda income tracker.

"Ahead of the Domino's H1 results next month, we take a more cautious outlook both in the current and outer years," the broker said as it cut its current-year EBITDA forecast from £150m to £144m.

"We believe there is still much to like, particularly in terms of loyalty potenital for increasing orders; however, we prefer to remain cautious ahead of the interim result."

Nevertheless, with the stock trading at an EV/EBITDA multiple of 11, which it still a discount to others in the sector, Shore Capital still sees upside from the current share price.

The stock was down 1.6% at 251.6p by 1238 BST.