Berenberg starts Domino's Pizza at 'buy'

(Sharecast News) - Berenberg initiated coverage of Domino's Pizza Group with a 'buy' rating and a 291p target price on Tuesday, arguing that the chain's valueled proposition and the early success of its Chick 'N' Dip range leave the shares primed for a rerating after a period of weakness.

The broker said Domino's continued to take share in the £3bn UK pizza market as rivals struggle with slowing likeforlike volumes and rising costs. It stated the group should benefit from consumers trading down and eating at home more often, helping to support volumes and offset any potential impact from appetitesuppressant drugs.

Berenberg described Chick 'N' Dip as potentially "transformational", estimating that sales have been 80% to 90% incremental and have lifted average order values from £26 to £36. Based on an attachment rate of 5% to 18% and incremental order growth of 0% to 3% through FY26-FY29, the broker said earnings could be materially higher, with its most bullish scenario implying FY29 earnings per share 37% above current consensus.

The German bank also highlighted Domino's scalable model, underpinned by around 14m active customers, five UK supplychain centres, a franchiseled delivery network averaging 24minute fulfilment times, and a £90m marketing budget funded by franchisees. It expects margins to expand over the medium term, supported by Chick 'N' Dipdriven operating leverage, automation investment and tighter cost discipline under the new management team.

Berenberg noted that short interest remains elevated at around 9%, which it said reflects forecasts that fail to capture the Chick 'N' Dip opportunity.

With the shares trading on roughly 12x FY26 earnings and yielding 5%, Berenberg sees scope for a rerating, forecasting a threeyear EPS compound annual growth rate of 5%, rising to 13% in its bullish case and implying total shareholder returns of 10% to 18% before any valuation uplift.

Reporting by Iain Gilbert at Sharecast.com