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DP Poland

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westmoreland
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Re: DP Poland

#119050

Postby westmoreland » February 19th, 2018, 2:14 pm

do you invest on the assumption that it will eventually enjoy similar profit margins to the UK based DPG? in very rough terms, DPG has about 1200 stores and £70m profit meaning profit per store of about £60k.

its a tough one as profitability looks to be some way off. DPG on the other hand has grown its dividend since 1998.

DPP believe the market can sustain 300 stores. very quick and crude calculation: the top stores in DPP earn £80k + of ebitda. assuming £40k of net profit eventually on average, this would equate to £12m. 20 x multiple would be £240m. there will no doubt be further rights issues in the pipeline.

a key milestone is that national advertising is possible, and of course the fact that poland will continue to get more prosperous over the medium term while the income of the average UK dominos customer will stagnate.

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Re: DP Poland

#119127

Postby ADrunkenMarcus » February 19th, 2018, 7:19 pm

westmoreland wrote:do you invest on the assumption that it will eventually enjoy similar profit margins to the UK based DPG? in very rough terms, DPG has about 1200 stores and £70m profit meaning profit per store of about £60k.


I don't take that as a given, but profit margins should expand markedly as the group scales up and benefits from economies of scale. That was certainly the case for the UK one and I think is a feature of the business model. Poland appears to be converging with European levels of GDP per capita over time.

westmoreland wrote:its a tough one as profitability looks to be some way off. DPG on the other hand has grown its dividend since 1998.


The group level estimates show losses falling dramatically in 2019, so in a best case scenario it may be ending next year in a break even position. I would like to have more detail about the continued growth of the mature stores and if they are exceeding £80,000 EBITDA. We do have promising news that the newer stores are breaking even faster. The current store estate is still far from mature and has plenty of scope for growth on its own.

westmoreland wrote:DPP believe the market can sustain 300 stores. very quick and crude calculation: the top stores in DPP earn £80k + of ebitda. assuming £40k of net profit eventually on average, this would equate to £12m. 20 x multiple would be £240m. there will no doubt be further rights issues in the pipeline.


I think they are being conservative. The UK one is still growing but they see potential for - I think I remember it as - c.1,200 stores in a market of 65 million people or so, plus their international ones on top. In round numbers, Poland has 38 million so on a pure population basis you could argue 700 stores eventually...cutting it down then maybe 500 is a good mix between conservatism and optimism.

Best wishes


Mark.

westmoreland
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Re: DP Poland

#120377

Postby westmoreland » February 25th, 2018, 7:19 pm

ADrunkenMarcus wrote:
westmoreland wrote:do you invest on the assumption that it will eventually enjoy similar profit margins to the UK based DPG? in very rough terms, DPG has about 1200 stores and £70m profit meaning profit per store of about £60k.


I don't take that as a given, but profit margins should expand markedly as the group scales up and benefits from economies of scale. That was certainly the case for the UK one and I think is a feature of the business model. Poland appears to be converging with European levels of GDP per capita over time.

westmoreland wrote:its a tough one as profitability looks to be some way off. DPG on the other hand has grown its dividend since 1998.


The group level estimates show losses falling dramatically in 2019, so in a best case scenario it may be ending next year in a break even position. I would like to have more detail about the continued growth of the mature stores and if they are exceeding £80,000 EBITDA. We do have promising news that the newer stores are breaking even faster. The current store estate is still far from mature and has plenty of scope for growth on its own.

westmoreland wrote:DPP believe the market can sustain 300 stores. very quick and crude calculation: the top stores in DPP earn £80k + of ebitda. assuming £40k of net profit eventually on average, this would equate to £12m. 20 x multiple would be £240m. there will no doubt be further rights issues in the pipeline.


I think they are being conservative. The UK one is still growing but they see potential for - I think I remember it as - c.1,200 stores in a market of 65 million people or so, plus their international ones on top. In round numbers, Poland has 38 million so on a pure population basis you could argue 700 stores eventually...cutting it down then maybe 500 is a good mix between conservatism and optimism.

Best wishes


Mark.


yes, the term is 'critical mass' - once they get to a certain number of stores, things really start to happen. they don't need to raise capital, and can really gain traction with national advertising.

one question i have - do you think a tie in with DPG PLC or the australia based DPE could be possible in future? both of those serve multiple markets and have excellent track records. i don't see the logic in having DPP concentrate solely on poland. there is plenty of expertise at both the aforementioned companies.

i agree those figures provided by DPP on potential stores is on the low side. on a 10-12 year view, you can see them getting close to 300-500. DPG PLC have raised their max UK store potential to 1600. pretty much a 60% increase on the 1050 or so it is now.

definitely an interesting company. i own DPG PLC and the concept has been proven the world over. the stock has been very volatile - part and parcel of holding a highly valued growth stock i suppose.

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Re: DP Poland

#120515

Postby ADrunkenMarcus » February 26th, 2018, 12:30 pm

westmoreland wrote:yes, the term is 'critical mass' - once they get to a certain number of stores, things really start to happen. they don't need to raise capital, and can really gain traction with national advertising.

one question i have - do you think a tie in with DPG PLC or the australia based DPE could be possible in future? both of those serve multiple markets and have excellent track records. i don't see the logic in having DPP concentrate solely on poland. there is plenty of expertise at both the aforementioned companies.

i agree those figures provided by DPP on potential stores is on the low side. on a 10-12 year view, you can see them getting close to 300-500. DPG PLC have raised their max UK store potential to 1600. pretty much a 60% increase on the 1050 or so it is now.

definitely an interesting company. i own DPG PLC and the concept has been proven the world over. the stock has been very volatile - part and parcel of holding a highly valued growth stock i suppose.


The company incurred many expenses related to the new commissary in 2017, so those will not be repeated, and it will be interesting to see how they grow nationwide. They've got capacity to support up to 150 stores and will take time to get there.

Barring some sub-franchisee stores which broke even very quickly in Warsaw in 2013-14, new stores were previously expected to break even in 18 months and be fully mature in 36 months. This time period is shortening because the company now say it takes 10-12 months for a new store to break even, which is good news. It also implies that the 19 stores opened in 2017 will all be breaking even by the end of this year, getting rid of a large drag on group EBITDA and then fuelling it from 2019. Of course there'll be many new stores opened in 2018 and 2019, too, but it all continues to move in the right direction.

If we start with 55 stores today and assume they open 20 in 2018 then we'll end the year with about a quarter of the store estate (20/75) under 12 months old; another 15 in 2019 would take us to 17% of the estate under 12 months old (15/90); another 15 in 2020 would take us to 14% of the estate under 12 months old; and so it continues that, even if they open 15-20 stores a year, the 'drag' of new loss making stores will continually be falling. And we'll see continuing boosts as the large number of stores opened in 2016 and 2017 mature and generate increasing profits.

On the issue of tie ups or co-operation, I don't know. Possible, yes, but I don't have any knowledge to make an informed judgement. If the Polish one was failing, which it isn't, then I do see some safety net in that the UK one of the Australian listed one might want to take it over.

The UK one basically started expanding internationally as the UK became a more mature market for them: maybe the Polish one could do the same into other eastern European countries? If we get to about 100 stores around 2020, then hopefully we'll be at the start of a really virtuous circle. It has been taking time and there have been some significant mistakes (the company raised far too little capital at IPO and had to dilute hugely in 2012), but we're getting there...

Best wishes

Mark.

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Re: DP Poland

#120528

Postby gbjbaanb » February 26th, 2018, 12:54 pm

Shares magazine had a piece about DP Eurasia (Turkey and Russian)

(probably paywalled link unless you are with AJBell or subscribe): https://www.youinvest.co.uk/sharesmagaz ... k-operator

Four years ago DP Eurasia won the master franchise for Russia, replacing someone else who had only managed to open 13 stores in 17 years, all in Moscow. It quickly fixed the operations and now has more than 100 stores in the Greater Moscow region.


The piece was very upbeat about their prospects in the undeveloped Russian market that appears keen on fast-food pizza delivery.

ADrunkenMarcus
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Re: DP Poland

#121573

Postby ADrunkenMarcus » March 2nd, 2018, 11:15 am

Thanks for sharing.

One to diversify somewhat by buying into the business model being rolled out in different territories.

Best wishes


Mark.

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Re: DP Poland

#129580

Postby ADrunkenMarcus » April 2nd, 2018, 7:42 pm

There were quite a few takeaways from the recent full year results for DPP.

On page 12/17 of the pdf. presentation:
http://dppoland.com/2015/wp-content/upl ... h-2018.pdf ... it states:

'Some 2018 costs and investments were paid in 2017 £ accrued for 2018

Input VAT to be paid back in 2018 + other VAT reclaims

In total c.£1.1m in equivalent cash on top of the £4.5m cash at 31 Dec 2017 = <£6m

No further equity raise anticipated to deliver 5-year roll-out plan of 145 stores by YE 2023

Banking facility from 2019, assuming DP Polska cash positive
'


There's clearly scope to issue more equity if needed, as they have left some room in there (not 'anticipated'). It would be irresponsible to rule it out, but I was encouraged they felt able to highlight the point.

Key for me is that the end seems to be in sight for any further substantial equity issuance and they've now set a target of 100 stores by year end 2020 and 145 stores by year end 2023, which seems quite achievable and a steady rollout. If DP Polska does go cash positive, ahead of the group as a whole, then the ability to access some debt finance is positive news IMHO.

Best wishes

Mark.

westmoreland
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Re: DP Poland

#130801

Postby westmoreland » April 8th, 2018, 6:55 pm

statement of the obvious - but you have to wonder why they are pursuing a strategy of corporate stores? 53% are corporate.

the whole point of the domino's model is that the franchisees bear the costs of fitting out stores. there are of course some central costs the franchisor bears, but these are not sufficiently large that large equity raises should be needed every year.

DPG Plc has paid in capital of £37m while DP poland has £32m paid in capital. DPG Plc floated with 177 stores - all franchisees.

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Re: DP Poland

#130802

Postby ADrunkenMarcus » April 8th, 2018, 7:09 pm

westmoreland wrote:statement of the obvious - but you have to wonder why they are pursuing a strategy of corporate stores? 53% are corporate.


They need to get better on this. The long term vision they had previously articulated was that they would aim for a third corporate and two thirds franchised over the long run. Therefore they need to shift the balance from 53-47% towards 33-66% over the long term.

I think there are a mix of reasons, perhaps in regard to personal finance and banking credit access for Polish entrepreneurs. I don't think they have the same sort of development in this regard as the UK does. They did also recognise earlier that they felt they needed to get to a critical mass of corporate stores before they felt able to sell sub franchises, so I think this influences their strategy. Perhaps they can subfranchise some of the existing corporate stores in future, which would also generate some revenues (assuming they don't give them loans!)

Best wishes

Mark.

westmoreland
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Re: DP Poland

#131809

Postby westmoreland » April 12th, 2018, 10:50 pm

ADrunkenMarcus wrote:
westmoreland wrote:statement of the obvious - but you have to wonder why they are pursuing a strategy of corporate stores? 53% are corporate.


They need to get better on this. The long term vision they had previously articulated was that they would aim for a third corporate and two thirds franchised over the long run. Therefore they need to shift the balance from 53-47% towards 33-66% over the long term.

I think there are a mix of reasons, perhaps in regard to personal finance and banking credit access for Polish entrepreneurs. I don't think they have the same sort of development in this regard as the UK does. They did also recognise earlier that they felt they needed to get to a critical mass of corporate stores before they felt able to sell sub franchises, so I think this influences their strategy. Perhaps they can subfranchise some of the existing corporate stores in future, which would also generate some revenues (assuming they don't give them loans!)

Best wishes

Mark.


agreed on the franchising.

i have attempted to understand the finances of DP poland by trawling through the early reports for DPG Plc. DPG was making money from the get go - although it's very difficult to fully get your head around the finances of a early stage franchisor business. almost all the figures are adjusted for something.

there are too many unknowns at the moment for me to commit money here. i understand the business model very well as an investor in DPG since 2016, and it is clear to me that tackling the polish market would be best done by either DPG or DPE. look at how quickly DPG have built scale in the likes of norway, for how this should be done.

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Re: DP Poland

#167167

Postby ADrunkenMarcus » September 18th, 2018, 12:48 pm

Something to suck on:

http://hardmanandco.com/docs/default-so ... -rolls.pdf

Best wishes

Mark.

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Re: DP Poland

#186337

Postby CommissarJones » December 12th, 2018, 11:28 am

Well, the stock is definitely cheaper now.

https://www.investegate.co.uk/dp-poland ... 00031782K/

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Re: DP Poland

#186367

Postby ADrunkenMarcus » December 12th, 2018, 1:15 pm

It certainly is!

Best wishes

Mark.

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Re: DP Poland

#187260

Postby westmoreland » December 16th, 2018, 4:16 pm

ADrunkenMarcus wrote:Something to suck on:

http://hardmanandco.com/docs/default-so ... -rolls.pdf

Best wishes

Mark.


interesting - but i would note that the piece was commissioned by DP Poland itself. it's very much a long term project - 60 stores at £18m market cap equals £300k per store. you have to invest with at least a 5-7 year outlook, and be prepared for the market to mark down the business. as it points out, start up businesses are difficult to value. domino's UK is valued around quadruple that, but is more mature and is a cash generation machine.

i notice the massive spread on the stock - is it always that big?

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Re: DP Poland

#187283

Postby ADrunkenMarcus » December 16th, 2018, 5:51 pm

The danger for DPP has been developing in this way on a public market listing. I think that explains much of the reaction recently. It is not very liquid.

Best wishes

Mark.

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Re: DP Poland

#187413

Postby ADrunkenMarcus » December 17th, 2018, 11:36 am

We see more of this today in the share price going up 12% at one stage on no 'newsflow'. This is one which overshoots on the downside and the upside. At present levels, the market capitalisation is about the same as the revenues expected for 2020.

Best wishes

Mark.

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Re: DP Poland

#188215

Postby ADrunkenMarcus » December 20th, 2018, 7:56 am

Yesterday the spread was considerable: sell at 12p, buy at 14p - so the buy price is about 17% higher than the sell price. This is something well known with particular AIM stocks, however the difference is such to make a significant change to the overall valuation of my portfolio - depending on which one I go for.

Best wishes

Mark.

westmoreland
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Re: DP Poland

#188451

Postby westmoreland » December 20th, 2018, 6:39 pm

ADrunkenMarcus wrote:We see more of this today in the share price going up 12% at one stage on no 'newsflow'. This is one which overshoots on the downside and the upside. At present levels, the market capitalisation is about the same as the revenues expected for 2020.

Best wishes

Mark.


i noticed the company has capacity to expand up to 150 stores with very little incremental investment in the supply chain. and of course the tailwind that the polish economy grows at 3-4% per year compared to the UK which has stood still since the recession.

at the current price, the net assets of the company are around £14.5m, against a market cap of about £19m. main concern is the likelihood of a further equity raise on the horizon, as the overall business is not forecast to be profitable for at least 3 years.

currently agonising with this one. i'm looking at domino's uk trading at a very attractive value but only have enough cash to buy a chunk of one at the moment :mrgreen: something to mull over this weekend.

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Re: DP Poland

#188797

Postby ADrunkenMarcus » December 22nd, 2018, 10:54 am

westmoreland wrote:i noticed the company has capacity to expand up to 150 stores with very little incremental investment in the supply chain. and of course the tailwind that the polish economy grows at 3-4% per year compared to the UK which has stood still since the recession.

at the current price, the net assets of the company are around £14.5m, against a market cap of about £19m. main concern is the likelihood of a further equity raise on the horizon, as the overall business is not forecast to be profitable for at least 3 years.

currently agonising with this one. i'm looking at domino's uk trading at a very attractive value but only have enough cash to buy a chunk of one at the moment :mrgreen: something to mull over this weekend.


Well, DOM is on a 6.8% free cash flow yield which seems attractive. :) I've held since 2010 and the share price is up more than double despite a huge downward re-rating.

As you say, DPP has put a lot of investment in already to support the infrastructure for 150 stores (they target 145 by the end of 2023). This capital spending will not need to continue and, by the time they do need further investment then the company should be self-financing. The headline figures hide what is, increasing, a business generating considerable cash. When they trialled TV advertising early in 2018, like for like sales responded very strongly, but they cannot do more of that optimally until they have a larger store estate to benefit from it.

If we look at 2015, revenue was £3.6 million and it's likely to be around £13 million for this year. Pre-tax profit/(loss) increased from (£2.2 million) in 2015 to (£2.6 million) in 2017 and may be slightly worse this year. However, capital expenditure rose from £0.8 million in 2015 to £4.2 million in 2017. On that basis, they would have reported a pre-tax profit were it not for the capital investments they had to make which are essential for the business's future growth. A lot of focus is on the company's group level performance and when they will breakeven, but I think many do not recognise the underlying progress that is being made as the infrastructure is built, the store estate expands substantially (new stores act as a drag initially as start-up losses are incurred).

It's hard to value a business that is not yet profitable overall. DPP's store estate *is*, but it's spending to expand with new stores. We have under 70 stores today but they want 100 by 2020. On a revenue basis, the ratio of market capitalisation to revenue (i.e. each £1 of market cap for each £1 of revenue) was about 8, 10 and 6 in 2015, 2016 and 2017 respectively (using share count and market cap at calendar year end), but it's now likely to end 2018 at 1.5. I think 'Mr. Market' is worried about dilution, but he overshot on the upside and then undershot on the downside.

Depending on their strategy, I would now expect a capital raise of some sort in 2019. They do have a borrowing facility to use when DP Polska is cash positive. I don't think they want to raise too much equity. Perhaps they should have raised a few million more in late 2016 when they raised a load at 48p a share.

Best wishes

Mark.

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Re: DP Poland

#199596

Postby CommissarJones » February 7th, 2019, 1:46 pm

ADrunkenMarcus wrote:Depending on their strategy, I would now expect a capital raise of some sort in 2019.

Well called - a £5.3 million placing was announced today. Also, the CEO is walking the plank and will step down in June.

https://www.investegate.co.uk/dp-poland ... 00043115P/

There is a reference to a renewed focus on sub-franchisee recruitment, and the company said it will consider closing corporate stores if they continue to underperform.


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