With investors besotted by the returns from Domino’s Pizza over the past few years it’s little wonder that other Domino’s master franchise holders have decided to list their own shares on the LSE. First there was DP Poland and now there is DP Eurasia (LSE: DPEU), which listed in June and holds the franchise rights for Turkey, Russia, Azerbaijan and Georgia.
Unsurprisingly given their populations, Turkey and Russia are far and away the company’s largest markets with 490 and 96 stores respectively at the end of the half year to June. The company is following a similar strategy to the one that has made its UK peer so successful, namely rolling out new stores in virgin territory and enhancing the customer experience to increase like-for-like (LFL) sales at existing locations.
Thus far this strategy is bearing for fruit with LFL sales in Turkey, which includes the seven Azerbaijani and Georgian outlets, up 7% year-on-year in H1 and LFL Russian sales up 31%. In both cases this growth was driven primarily from double-digit increases in online orders, much the same as has happened in the UK.
The combination of new locations and LFL sales improvement led to group revenue rising 38.5% in the period to 289.8m Turkish Lira, or roughly £58m at current exchange rates. Looking forward, there’s plenty of potential for the company to sustain this level of growth as it plans to add 30 new stores annually in Turkey and 40-60 annually in Russia over the medium term, together with strong LFL growth in both territories. For now, the group sees the potential for some 900 stores in Turkey and 1,500 in Russia over the long term.
The business still has some way to go in meeting these targets and with adjusted EBITDA margins of only 12%, it’s far less profitable than its much more mature UK counterpart. Furthermore, with its shares highly valued at a full 24.2 times forecast 2018 earnings, there’s not a huge margin of safety for investors. However, if it all goes to management’s plan, there is considerable scope for impressive sales and earnings growth.
A Hollywood hit in the making?
A more unique business that’s caught my eye is that of FFI Holdings (LSE: FFI). The company, whose initials appropriately enough stand for Film Finances Inc, provides completion contracts for TV programmes and films such as Pulp Fiction, The King’s Speech and Slumdog Millionaire.
Before they pony up cash to producers, financiers will require they take out a completion contract, which is essentially a form of insurance that puts the guarantor on the hook if a film goes over budget or is delivered late.
FFI is the world leader in this category and has a stellar record of making good and profitable contracts. In the year to March, its revenue was up 9.1% to $38.8m with underlying operating profits of $12.7m. This growth is due to taking on larger projects and also the wider uptick in global film and television production numbers.
In addition to its core business, management has made the decision to branch out into offering ancillary services such as accounting, editing and localisation services. This is a much riskier strategy that lessens the focus on its core competencies, but if it goes well the company’s current valuation of 19.4 times forward earnings could prove an attractive one.
