Domino's new chicken brand is 'low risk', says Shore Capital

(Sharecast News) - Shore Capital has praised the launch of Domino's Pizza Group's new chicken-focused sub-brand, CHICK 'N' DIP, but has retained its 'hold' recommendation due to macro concerns.

DPG, the UK master franchise of the American fast-food chain, said on 8 September that it was trialling CHICK 'N' DIP in nearly 190 stores across the northwest of England and Northern Ireland.

The trial, which will run in 187 stores before being scaling nationally, marks "a bold new chapter for Domino's", according to Andrew Rennie, chief executive.

Shore Capital called it a "low-risk strategy", given Domino's is using its existing fulfilment and distribution facilities to test expansion, but noted that the chicken market in the UK is "competitive", with growing investment from leading players.

"There is a growing market to potentially grow within; however, we feel that most of the current chicken QSR offerings are fairly comparable and competitive. Ultimately, it is likely to come down to customer brand loyalty, in our view and habits," the broker said.

"We believe there is a lot to like about Domino's, including its strong brand awareness, well-funded balance sheet, and development into loyalty, which could support customer frequency. However, whilst we appreciate these qualities and note the stock remains optically cheap at c.9x EBITDA, with an 8% FCFY, our 'hold' stance reflects our concern about the current consumer backdrop of low confidence and slowing discretionary income."