Home delivery chain Domino’s Pizza Group (LSE: DOM) was up 6% in early trading after today’s Q3 trading statement said it continues to grow in the UK and Ireland, but has made the tough decision to exit less profitable overseas markets.
Domino’s effect
UK system sales rose 3.9%, a performance the group described as “solid”, with sales in the Republic of Ireland up 2.4% in local currency terms. The group continues to expand, opening 12 stores in Q3, while online sales also grew at a healthy pace, up 7.2% in the UK, and 9.9% in Ireland. Online now accounts for 90.9% of delivery sales.
Management has reviewed its international markets, which include Switzerland, Iceland, Norway and Sweden, and decided to exit them “in an orderly manner.” That’s bad news for delivered pizza lovers in Oslo, but outgoing CEO David Wild concluded that “whilst they represent attractive markets, we are not the best owners of these businesses.”
That seems to make more sense than battling on in the face of “disappointing” international system sales, which were “flat year on year in local currency and down 2.7% on a reported basis in Q3.”
Wild and woolly
Domino’s has also been caught up in a bitter dispute with franchisees over their share of the company’s profits, rumoured to have been worsened by Wild’s hard man tactics and, today, he said a resolution would take time, with no settlement before 2020.
In August, the Fool’s Paul Summers noted that Domino’s no longer holds a net cash position, but instead has net debt of £239m. That doesn’t seem too onerous for a business with a market-cap of £1.29bn. But I’m deterred by its forecast valuation of 17.9 times earnings, for a stock that’s trading 20% lower than three years ago.
Domino’s is an established brand but faces plenty of competition in a crowded home food delivery market, and has serious internal issues to resolve as it wave goodbye to the Wild times. I think you can find better opportunities elsewhere, such as these two Brexit-proof stocks.
Bother for the Brothers
Fund manager Rathbone Brothers (LSE: RAT) is having a bad time of it with its share price down more than 10%. That comes as investors recoiled at today’s trading update, with its key Investment Management arm suffering net investor outflows in a “difficult market for savings.”
Total funds under management did rise 4.4% year-on-year to £49.4bn at 30 September, over a period when the FTSE 100 fell 1.4%, while gross quarterly organic inflows in Investment Management “remained resilient” at £800m, same as last year.
However, net quarterly outflows in Investment Management totalled £200m, against net inflows of £6.9bn last year (mostly down to acquiring Speirs & Jeffrey). Today’s interim statement blamed “ongoing weak investor sentiment and investment manager departures,” together with anticipated outflows from short-term discretionary mandates.
Worse, this is expected to continue to weigh on net growth in funds under management and administration in 2020 too.
Today’s volatile markets are tough for asset managers, and they will get tougher if the global economy continues to slow. The Rathbone Brothers share price has grown a third over the last three years, but today’s pricey valuation of 18.3 times earnings hardly tempts, while the 2.9% forecast yield isn’t enough compensation.
