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Why Domino’s Pizza Enterprises Ltd shares just soared another 12%

What: Leading pizza chain business Domino’s Pizza Enterprises Ltd (ASX: DMP) has announced the expansion of its operations into Germany.

The details of the strategic move include three key details –

  1. The formation of a two-thirds owned joint venture (JV) with the UK-listed Domino’s Pizza Group plc regarding their Master Franchise Agreement for Germany
  2. The newly-formed JV to acquire Joey’s Pizza, the largest pizza delivery chain in Germany by network sales and number of stores for up to €79 million depending on earn-out criteria being met
  3. The JV to acquire between 10 and 15 Domino’s branded stores in Germany for approximately €2 million to €3 million

So What: The announced acquisitions will provide immediate scale for Domino’s Pizza Enterprises in the German market which according to the group is the fourth-largest pizza market in the world.

Importantly, Germany is believed to be underpenetrated in terms of pizza stores which should provide the company with substantial store rollout potential.

The acquisitions also expand the group’s footprint in Europe to four countries namely, France, Netherlands, Belgium and Germany. It also expands its current European store numbers from 551 to 773.

Now What: Management has provided guidance that these transactions are expected to be immediately 4% to 5% earnings per share accretive on an underlying, full year pro forma 2015 financial year basis.

The announcement also contained upgraded earnings before interest, tax, depreciation and amortisation (EBITDA) and underlying net profit after tax (NPAT) guidance for 30% growth, assuming the transactions are completed early in 2016.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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