We maintain ?hold? on Jubilant Foodworks shares as long-term prospects remain positive, even as near-term cyclical weakness could keep valuations under pressure.
We assign a DCF-based target price of R1,045 (COE 13.5%, 6% terminal growth and up from R1,119).
We lower our FY14e same-store sales growth (SSSG) to10%, but keep FY15e growth mostly intact at 14% (versus 15% earlier for both years). However, we raise our store count estimates by 4-6%.
Given the weaker SSSG, we build in 100-bps margin compression in FY14E (in line with management guidance) for the Domino?s business. We do not incorporate Dunkin Donuts (DD) into our earnings estimate or stock valuations given the early stage of the business.
Jubilant Foodworks reported Q4FY13 SSSG at 7.7%, its weakest growth in the last 16 quarters, and significantly below our expectations (13%). As a result, operating profits came in 7% below estimates. The outlook for FY14 is muted, with management guiding to SSSG of 10% (vs 16% in FY13 and 30% in FY12). Inflation in underlying costs (average rentals and staff costs), however, are running high and will impact margins in the near term.
Jubilant Foodworks added 111 stores in FY13, expanding its average store count by 23% ? at a pace similar to FY11 and FY12. Management now plans to add 125 stores in FY14e, maintaining its store expansion rate at 23%, which is a positive.
