Dp Poland Share Discussion Threads

[lbo] 12/8/2018 09:47

What times earnings would you apply to a business that at very best will only exist for 17 years and then not be owned by the current shareholders!? Suppose you would apply a premium not a discount on it!? Telepizza will still be earning income for its current shareholders in 17 years. DPP won't! At least you now admit in max 17 years DPP on AIM will be worth Zero. And actually could be worth zero in only a few years ie yes 7 years as they need to be able to exercise the option extension.

[the ghost who walks] 12/8/2018 07:57

Good that you agree that at their option they have 17 years left. If that's a few years then I'm still a young man thankfully! I'm hoping that extending won't cost 10x earnings which seems to be the default valuation method I learnt yesterday.

[lbo] 12/8/2018 06:32

They only have the master franchise for Poland until 2025 and then an option to extend. Do you know the cost of exercising the option?

[the ghost who walks] 11/8/2018 15:44

By few years left I guess you mean 17 years?Think valuation argument is a matter of opinion - understand your 10x earnings approach. It's a bit basic, but at least understandable.

[adrunkenmarcus] 11/8/2018 13:25

I don't know much about the Telepizza stores, although I see it's been pointed out that their sales had stalled. I assume they were therefore mature stores.

Like for like sales growth does seem to be continuing even for the older DP Poland stores. Original expectations were a mature store would generate £80,000 EBITDA and the oldest stores are reported to be doing better than that. Further, I note that DP Poland's stores have higher sales per store already, even though a huge proportion of those stores are new and still loss-making. As recently as 2016, they had under 30 stores (from memory).

None of this takes away that the market cap of DP Poland is higher than the company's current development warrants.

On the issue of franchisees, I think the balance needs to shift the other way so that in the long run two-thirds of stores are sub-franchised and the remainder corporate. There has been an issue sub-franchising while the business lacked sufficient scale, but the store estate is expanding. It is franchising that does so much to generate high ROCEs for Domino's Pizza.

[opodio] 11/8/2018 11:15

Telepizza sold for £1 was it?

Why is this crock worth £41m

LOSSMAKING CROCK OF DOG DIRT

[lbo] 11/8/2018 10:26

In order to justify the current £40m valuation DPP would need to be well on the way to doing well over 300m PLN in revenues and making profits of £4m per annum. They are not. And they only have a few years left on their Polish master franchise agreement.

[the ghost who walks] 11/8/2018 08:06

Oh if you are talking about time to break even I agree it will take a while. You were previously referencing Telepizza for value purposes - that's what I was pointing out wasn't exactly a clear comparison.

[lbo] 11/8/2018 06:15

Well besides Telepizza you can also look at McDonalds and Sphinx comparisons in the Polish market. And looking at the number of restaurants, the time it took to get to that number, turnover and profits for that number of restaurants all suggest DPP is still way overvalued on AIMhttp://www.ceeretail.com/news/47440/polish-sales-of-mcdonald-rsquo-s-improving209 polish McDonald's did 668.4m PLN in revenues and 39.8m PLN in net profit in 2006 and they set up in Poland in 1992 so took 14 years to hit net profits of circa £8m and 209 sites.http://www.superbrandstv.com/?p=287 Sphinx is the largest casual-dining chain in Poland, boasting 93 units. The parent company also owns 10-unit Chlopskie Jadlo, which offers traditional Polish food, and a six-unit Asian chain called Wook. Founded in 1995 by Tomasz Morawski, Sfinks had a fraught financial history until Sylvester Cacek, a banker and investor, became the largest individual shareholder after buying roughly 19 percent of the stock in 2009. Last year, annual revenue climbed 3 percent, to 176.6 million zloty ($58.4 million), say company officials. Gross earnings grew 16.5 percent, to 11.8 million zloty ($3.9 million).

[the ghost who walks] 10/8/2018 15:03

In addition Telepizza Poland flat to shrinking.

[the ghost who walks] 10/8/2018 15:02

Lbo the stores at Telepizza are majorit franchise stores. Can't really compare to Dpp.

[bigboyo] 10/8/2018 13:00

adrunkenmarcus,

I noticed that you have not commented on the franchisee situation. Dominos grows by its franchise network and its surprising that there is no partner bank for DPP or a queue of franchisees waiting to open up. Do you have any knowledge about this?

The Polish people are hard working and they have a culture of small business/self-employment and franchise brands are highly investible.

What is even more worrying is that DPP seems to pick up ALL the initial costs, ALL the initial risk and then sells on merely at book value. What about the franchise fee ? What about goodwill ? What about accumulated losses on getting those stores to where they are at point of sale?

We have no clear explanation from "management" as to why they are doing this and whether this is their future model of recruiting all their franchisees.


" www.proactiveinvestors.co.uk/companies/stocktube/6516/dp-poland-sells-four-stores-to-fantastic-new-sub-franchisee--6516.html

........“We217;re selling him the stores at net book value,” Shaw explained.

DP Poland has a mixture of stores that are owned and run by the company and others that are run under a franchise operation. It looks like more sub-franchisee deals could be in the offing, with Shaw revealing that, backed by the £3.2mln the company raised last month, it is able to loan money to other area managers wishing to follow in Fronczyk’s footsteps........."

[lbo] 10/8/2018 12:26

Going on the Telepizza deal ie 107 stores generating system sales of PLN 103m being sold for only 8m Euros and applying that to DPP (current 54 stores and 58m PLN sales) and even doubling that to 108 store generating 116m PLN sales and even adding 20% higher growth at each store only gets you to max 140m PLN sales at DPP.That still only implies a max €11m equity valuation for DPP. But let's be very optimistic and even double that valuation to €22m.Still a long way from the Current market cap of DPP at 40m GBP

[adrunkenmarcus] 10/8/2018 11:44

I would agree with a lot of what you said, bigboyo. As you indicate, we all have to make our own judgement on the current risk vs. reward.

On the matter of your 'different perspective', my argument would be that all shops or stores take time to reach breakeven (whether that time is a day or eighteen months) and then longer to mature. (DPP's mature stores are apparently exceeding original EBITDA expectations.) We have, currently, a very large proportion of the store estate which consists of stores which are fairly new and are therefore incurring losses before reaching breakeven. None of them, even those breaking even, are yet fully mature (of course they need to get there). Once they are, I see no reason why their cashflows could not finance further, measured rollouts and Poland is quite a large country converging on a GDP per capita basis with EU levels.

For all the spin - and yes, management targets have not been communicated - I do have to wonder why management indicated that they did not foresee the need for a further equity raise to roll out 145 stores by 2023. That leaves wriggle room, of course, because it was not categorically ruled out (I doubt they could do that anyway), but they seem to have taken away the flexibility of an equity raise of even £2 million or so. They do have a borrowing facility, potentially, if DP Polska gets cash positive in 2019.

They do need to get to group EBITDA positive. (A good example of a self-funded store rollout is CAKE, which I've held since 2015.) If DPP did 'fail' then maybe DOM would be waiting to take it over, or another international franchisee group?

[the ghost who walks] 10/8/2018 11:12

Key is to keep opening stores and n issue new shares. Do that and stock will do great,

[bigboyo] 10/8/2018 09:08

adrunkenmarcus

The market has placed a value on dpp and its current operations. We all have our view on that depending on where we sit on valuation models and our own sense of judgement. For me, the present risk/reward is too great and the outlook a little foggy. If the opportunity arises and IF the risk/reward balance changes to a sufficent extent I would be tempted to invest in DPP.

In terms of your successful rollout case, there are different ways of looking at this.

One way is that as the brand becomes bigger, newer smaller towns become potential locations and brand familiarity increases and advertising costs reduce (on a per store basis). Royalties build momentum and you can start to attract franchisees who use their own capital to build stores and also pay a one off franchise fee. Cashflow becomes highly cash generative for DPP (as they do not have to sustain the initial losses from new openings). DPP is a very long way from that.

A different perspective could be , the best locations have already been chosen and opened, the cashflow from these best locations is still not sufficent to support the smaller less desirable locations now being opened and the roll out will only become harder as the smallest least desirable locations start coming on stream. Franchisees still seem to be buying opened units from DPP rather than opening the units themselves. Is this due to banking problems and high initial costs and poor initial cashflows requiring a lot of security before a bank lends to a franchisee to open a franchised Dominos ?

There are many ifs and buts .

What for me is deeply unimpressive and continual "15 consecutive growth in sales" and such like drivel and the lack of focus on cash consumed.

The updates and reports give very little meaningful information and very little in terms of strategic insight (besides we will open more stores and increase system sales .. DUH!)

No credible timeline is given for when group (as opposed to merely store) ebidta breakeven will be reached, when pre-tax profitability is anticipated, the ratio of corporate to franchised stores planned for opening in the next financial year (to help investors assess cashflow and profitability impacts) etc etc.

The reason may be because if the "management" gives specified timelines and miss then they maynot get their bonus.

[adrunkenmarcus] 08/8/2018 06:04

I note that opodio and a1samu have provided nothing in the way of a methodology or figures for their claims. On that basis, it's hard to assign any value to them.

I would agree that DP Poland is overvalued in terms of market cap based on their current store estate and EBITDA. I also agree they didn't raise enough equity capital in 2010, hence the dilutions that followed (in 2012 particularly). However, I think it will be undervalued when the group hits breakeven and the rollout continues successfully. The investment case has always been predicated on a long term successful rollout.

[adrunkenmarcus] 08/8/2018 06:01

Thanks for your detailed response, bigboyo.

[trytotakeiteasy] 07/8/2018 21:11

It seems to me that this is only worth £40m through the constant issue of shares.

[hybrasil] 07/8/2018 20:46

Opodio
Did you ever start a business?

[opodio] 07/8/2018 17:17

Telepizza sold for £1 was it?

Why is this crock worth £41m

LOSSMAKING CROCK OF DOG DIRT

[opodio] 07/8/2018 17:16

Heading to 10p

[hybrasil] 07/8/2018 17:10

To be fair to lbo he has always held that view.