Great write-up! What is your view on the rating given the constrained growth outlook and will the market de-rate the company over the next 3 years as it likely transitions from growth to a yield/buyback stock i.e. similar path Dominos UK has gone through
My own base case is explicitly for double-digit growth for the next three years, and implicitly for continued high-single-digit growth in the period to follow. On this path I think the stock would hold its rating if not better.
If you are wondering about a sharper slowdown to c.5% growth plus a reduction in capex and an increase in cash payouts to shareholders, then I think the stock could broadly support the current rating, at a 5-6% yield and with defensive characteristics. I note Domino's UK is currently rated at c.18x forward P/E which is only a turn lower than Greggs.
Of course if the slowdown is to zero growth or worse then all bets are off and we're back to the profit warning scenario I discuss in the post.
Great write-up! What is your view on the rating given the constrained growth outlook and will the market de-rate the company over the next 3 years as it likely transitions from growth to a yield/buyback stock i.e. similar path Dominos UK has gone through
Thanks!
My own base case is explicitly for double-digit growth for the next three years, and implicitly for continued high-single-digit growth in the period to follow. On this path I think the stock would hold its rating if not better.
If you are wondering about a sharper slowdown to c.5% growth plus a reduction in capex and an increase in cash payouts to shareholders, then I think the stock could broadly support the current rating, at a 5-6% yield and with defensive characteristics. I note Domino's UK is currently rated at c.18x forward P/E which is only a turn lower than Greggs.
Of course if the slowdown is to zero growth or worse then all bets are off and we're back to the profit warning scenario I discuss in the post.