Domino's Pizza, Boohoo and Housebuilders

Tuesday, June 12, 2018 - 10:33

“Donald Trump and Kim Jong-un’s summit has failed to excite investors with the FTSE 100 unmoved on Tuesday morning at 7,736. This could be a temporary pause while markets wait for more solid information,” says Russ Mould, investment director at AJ Bell.

Domino's Pizza

“The sudden departure of a company’s chief financial officer is rarely a good sign, so all eyes are on Domino’s Pizza for an explanation as to why its CFO Rachel Osborne has quit.

“The key point to note from the announcement is that she has left her post immediately with no reference to working out her notice period. That suggests something serious has happened, although one shouldn’t jump to any conclusions until there is a valid explanation.

“The absence of any farewell comment from chief executive David Wild in the announcement is also ominous; instead, we simply get a message of thanks from chairman Stephen Hemsley.

“Osborne’s departure comes at a very tricky time for the business. UK competition is intense and its overseas businesses have seen mixed fortunes of late.

“Domino’s has come under criticism from various parts of the investment analyst community who are worried about financial pressures on franchisees as a result of rising labour and food costs.

“Some analysts suggest franchisees could take their foot off the growth pedal in favour of focusing on cash generation and margins. Domino’s story has been built on rapid growth, so any threat to this momentum could see the business seek alternative means of expansion to keep driving up earnings.

“It is precisely times such as these that shareholders will want to see a consistent management team focused on the job in hand, rather than the shock of an important person like Osborne leaving.”

“If a company posts upwards of 50% growth in its quarterly sales you would expect its share price to rocket. This is not happening with online fashion retailer for two reasons.

“To justify its lofty market valuation, it requires high levels of growth. Failure to churn out such numbers would almost certainly result in a derating or, in other words, the shares trading on a lower multiple of its forecast earnings.

“There is also the question of where the growth is coming from. Revenue from the core Boohoo brand is up just 12%, whereas newer brand PrettyLittleThing is up 158%. This part of the business has performed very strongly since it was acquired in 2017 but it is yet to demonstrate its staying power.”  


“Updates from the housebuilding sector this morning provide further evidence of margin pressure amid a softening housing market.

“The industry has enjoyed a bumper period, supported by rising house prices, low interest rates and Government support in the form of the Help to Buy scheme but there are increasing signs this sunny backdrop is clouding over.

“For now, the pain seems to be concentrated at the top end of the market

Bellway admits it is making use of incentives to sell premium-priced properties as it guides for margins to be modestly lower in the year to 31 July 2018.

Crest Nicholson, which had already warned on margins in May, has an average selling price of £439,000 which is materially higher than that of its peers.”

These articles are for information purposes only and are not a personal recommendation or advice.

The daily market comment is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.