Management’s capital allocation decisions can have a big impact on shareholder returns
Thursday 11 Mar 2021 Author: Martin Gamble

Pizza franchise chain Domino’s Pizza (DOM) surprised investors when it announced (9 Mar) a fresh medium-term growth plan, a big share repurchase programme and strong recent trading, with the stock gaining over 12% in response.

New chief executive Dominic Paul plans to increase system sales by around 30% to between £1.6 billion and £1.9 billion by adding over 200 new stores.

In addition, the cash-generative company, which benefits from operating a capital light business model plans to return more excess cash to shareholders, starting with a £45 million programme, representing around 3% of the market capitalisation.

The share repurchase is worth roughly the 9.1p per share final dividend (£43 million).

Richard Stubber, retail analyst at Numis, estimated that the new growth plan if successful would deliver a compound annual growth rate of 5.5% over a five-year timescale or 6.7% over four years.

Theoretically that could result in shareholder returns of 11.5% to 12.7% a year over the next four or five years. While investors welcomed the new plans, it may take longer to convince analysts with four out of seven having a ‘sell’ rating on the stock.

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