UBS thinks Domino's Pizza looks good value at 47 times earnings

The Domino’s DRU delivery drone, from Flirtey. Supplied

UBS thinks Domino’s Pizza deserves to trade at a share price premium to peers because of its superior growth outlook.

A short time ago, the shares were up 2.8% to $67.00.

“Technology innovation and operational efficiencies have been key drivers of growth,” says UBS in a note to clients.

Domino’s has beat its guidance seven out of eight times over the last eight years by an average 5% and successfully made a number of acquisitions including Japan and Germany.

Its share price has fallen by around 20% since highs in August despite consensus upgrades.

Over the past five years Domino’s has grown like-for-like sales at an average rate of 8.1% a year, outperforming the fast food industry at 3.3%.

And UBS sees further growth ahead, as this chart shows:

Domino’s is the largest Pizza player in Australia and New Zealand but it still has only a 4% share of the $23 billion takeaway market.

UBS says there’s room to move higher despite a high price-earnings ratio of 47.

In August, Domino’s announced a 32.7% rise in full year sales to $1.964 billion and underlying profit after tax was ahead of guidance at $92 million, a 43.6% rise and a record.

UBS has upgraded Domino’s to a Buy recommendation with a 12 month price target of $79.70.

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