Some FTSE stocks attract short-sellers like bees to honey. Think battered cinema operator Cineworld or troubled white goods seller AO World. That said, there are other companies where this kind of attention is arguably more surprising. Let’s look at a couple of examples and see whether there’s a buying opportunity for me. 

Is the purple patch over?

It’s interesting to see Kingfisher (LSE: KGF) so high up the table of most hated stocks. Thanks to the explosion in the popularity of DIY over the pandemic and a very healthy housing market, investors might assume that short-sellers would have no interest in the B&Q and Screwfix owner. Then again, recent share price activity suggests otherwise.

Kingfisher certainly hasn’t had the best of starts to 2022. In sharp contrast to index peers like BT and BP, the valuation here has fallen 10% year-to-date. That’s not nearly as bad as the drops seen in tech companies, but it still implies that some in the market think the FTSE 100 member’s purple patch might be over.

Given the above, it’s clear that next month’s full-year results will receive a lot of attention. Back in November, Kingfisher’s share price wobbled after the company revealed like-for-like sales of £3.2bn in Q3 were down 2.4% compared to the same period in 2020.

Is this indicative of more people spending money on other things they couldn’t do previously? Or is it simply a natural fluctuation in earnings that all companies experience? We’ll find out soon enough.

In the meantime, Kingfisher’s stock was trading on a P/E of 11 as markets opened. It also comes with a 3.7% yield. That looks pretty reasonable to me. As things stand however, I’m content to sit on the sidelines and wait to see just how tricky the last quarter has been. 

Shorting target

Another FTSE share that makes the ‘most hated’ Top 10 list is Domino’s Pizza (LSE: DOM). Again, this seems a bit surprising.

Back in December, the company announced it had reached a resolution to a long-running feud with its franchisees. As part of the deal, Domino’s will invest £20m over three years in stores and online apps. Marketing will also be stepped up.

In return, franchisees are expected to open a minimum of 45 stores per annum in the next three years, test and roll out new tech, and get involved in national promotions.

As might be expected, this news sent the shares sharply higher. Unfortunately, a good proportion of these gains have since been lost. Shares have fallen back 16% year-to-date.

But maybe this selling pressure (and shorter interest) does make sense. Like Kingfisher, the trading tailwind from multiple UK lockdowns is now over. The sharp rise in the cost of living could also be relevant. When times are tough, it seems likely that more of us will shun a takeaway in favour of a cheaper, shop-bought alternative. 

As a side note, Domino’s net debt has climbed significantly in recent years. I’d prefer it to be going in the other direction.

But companies with franchise business models often prove to be great wealth-compounders over the long term. Domino remains a highly-cash-generative business and P/E of 19 is also roughly in line with the company’s average P/E over the last five years.

Domino’s has now been added to my watchlist. I wonder if this attention from short-sellers might prove short-lived.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Great start

Don’t mistake me for some kind of stock market masochist. No one actually enjoys seeing the value of the biggest holding in their Self-Invested Personal Pension (SIPP) fall by a double-digit percentage. In fact, Smithson’s decline has the potential to hurt more than most. given that investors like me have been spoiled by performance for the majority of its existence. 

The small- and mid-cap-focused fund was launched back in October 2018. No doubt helped by its link to star money manager Terry Smith (Smithson comes from the Fundsmith stable and adopts the same strategy), investors were queueing up to throw their money in the ring. And up until recently, this confidence has been richly rewarded. 

From inception to the end of 2021, the trust delivered an annualised gain of 24.5%. That compares very favourably to the 13% achieved by its benchmark — the MSCI World SMID Index. It also more than justified the 0.9% annual management charge, in my opinion.

What’s gone wrong?

The recent wobble may be due to a number of things. First, there’s the issue of valuation. As a quality-focused fund, Smithson doesn’t look for cheap stocks.

Like its big brother, Fundsmith Equity, it targets companies with valuable brands and huge market shares that generate consistently high returns on the money they put to work. This includes property website Rightmove, mixer-drinks supplier Fevertree Drinks and Domino’s Pizza Group. Unfortunately, such businesses are rarely without friends and priced accordingly. That’s fine when markets are behaving themselves. Less so when investors are fretting over earlier-than-expected interest rate rises.

The fact that almost half of Smithson’s portfolio comes from the IT sector probably doesn’t help either. By sharp contrast to last year, companies in this space have now fallen out of favour. Thankfully, Smithson makes a point of avoiding the unprofitable fluff whose share prices are now falling faster than Boris Johnson’s approval ratings. Nevertheless, investors seem to be throwing the baby out with the bathwater.

The aforementioned performance of its shares may have also seen a few profit-takers emerge from the shadows. After all, Smithson’s market-cap had grown to £3.5bn by the end of December. That’s already pretty large for a trust that is designed to invest in companies lower down the food chain. In fact, the median size of business in the portfolio is actually £10bn! Moreover, manager Simon Barnard’s investment strategy is still to be comprehensively tested and some people may be getting out while the going’s good.

Loading up for the recovery

While I wouldn’t mind being proven wrong, I certainly don’t expect Smithson’s annualised return to remain at the percentage it stood at in December. As a fuss-free way of accessing high-quality businesses from around the developed world however, it still strikes me as a perfect core holding.

I believe that good businesses tend to outlive bad ones. I also regard myself as a long-term growth investor. As such, it makes sense for me not to panic about Smithson’s sticky patch just yet.

The post Top investment trust Smithson is flagging and I’m buying appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Smithson Investment Trust and Fundsmith Equity. The Motley Fool UK has recommended Dominos Pizza, Fevertree Drinks, and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I suspect there could be more gains on the cards over the rest of the year.

Plus 500: market crash winner

Thanks to March’s market crash and the volatility seen since, total revenue at Plus 500 rocketed 281% to $564.2m compared to the same six-month period in 2019. Earnings before interest, tax, depreciation and amortization (EBITDA) came in at $361.8m — a stonking 452% higher. 

Unsurprisingly, the company welcomed a huge number of new customers (over 198,000) over the half-year. Client deposits jumped from just over $467m in 2019 to $1.65bn over the period and 47 million trades were placed — a dramatic increase on the 17.5 million seen last year.

For those already holding the stock, the good news didn’t stop there.

Dividend delight!

In addition to announcing a new share buyback programme, Plus 500 also confirmed an interim dividend of $0.95 per share. That’s a rise of almost 250% on 2019’s cash payout! It also said that it was considering paying a special dividend to holders at the end of the full year. Based on trading over the last couple of months, I think the latter is very likely to happen.

It said today that customer income in the second half of its financial year so far was still “more than double that of the prior year“. Moreover, Plus 500 is absolutely rolling in money. With no debt to its name, the FTSE 250 stock had almost $588m in cash at the end of June.            

The nature of its business means the firm won’t be to every investor’s taste. Nevertheless, it’s hard to be bearish on the company as things stand. 

Indeed, with the shares trading on just six times earnings before today’s results and the possibility that markets could remain skittish for some time to come, I certainly wouldn’t blame anyone for taking a stake now. 

Not quite as tasty

Also reporting today was FTSE 250 peer Domino’s Pizza (LSE: DOM). Unfortunately for its owners, the numbers weren’t quite as tasty as those offered by Plus 500 (although that’s a big ask). That said, they still looked pretty reasonable under the circumstances.

Thanks to a 5.5% rise in system sales over the 26 weeks to 28 June, statutory pre-tax profit from continuing operations came in 13.6% higher at £45.8m. This was despite the company needing to remove collections during the lockdown and “some inevitable and, in certain areas considerable, incremental costs”. 

Looking ahead, Domino’s reported that recent trading had been “encouraging“. Another positive for shareholders was the announcement that it would be reinstating its dividend. The deferred FY19 payout of 5.56p per share will now be paid out on 18 September. 

But let’s not get ahead of ourselves. In line with other businesses that rely on discretionary spending, Domino’s went on to say that it was “too early to conclude how customer behaviour will evolve“. The company’s fractious relationship with its franchisees still needs to be resolved as well.

Having initially bounced back to form in the aftermath of March’s market crash, Domino’s share price has now settled at roughly where it was at the start of the year. Unlike Plus 500, I can’t see a catalyst for the shares to continue rising at the current time.

The post FTSE 250 stock Plus 500 is soaring today. I think there could be more to come appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Perfect opportunity

Over the past six years, AG Barr has generated an average return on capital employed of 16%, which puts it in the top quartile of the most profitable companies traded on the London market.

This metric tells us much more than just how much money the business is making. It also shows the power of AG Barr’s brands, such as Irn Bru and Rubicon — something Buffett is always on the lookout for when investing. 

AG Barr used to be a market darling, but ever since it warned on profits at the beginning of 2019, the stock has been on the decline. It has fallen nearly 50% from its all-time high of 950p printed at the end of May. 

However, I think this could be an excellent opportunity to snap up shares in it at a discount valuation. While analysts are forecasting a 19% decline in earnings per share for the year, even after factoring in this contraction, the stock looks cheap trading at a forward P/E of just 21, compared to its long-term average of around 23. 

Competitive advantage

I think the Oracle of Omaha would also be interested in Britvic (LSE: BVIC). Its competitive advantage lies with its brands. The maker of brands such as Robinsons, J2O, Tango, Fruit Shoot and Teisseire, can rely on the reputation of these products to drive sales, a luxury that’s only available to a handful of companies. 

Just like AG Barr, Britvic’s competitive advantages show through in its profit margins. Return on capital employed has averaged nearly 19% for the past six years, and earnings growth has averaged 14% per annum. The company’s operating profit margin has remained relatively stable at 11% since 2013.

Right now the stock is trading at a forward P/E of just 15.5, that’s below the industry median of 18.8 and AG Barr’s multiple of 21, despite Britvic’s higher return on capital. A dividend yield of 3.3% only sweetens the appeal, in my opinion.

Global brand

The final company with a robust competitive advantage that I think Warren Buffett would want to buy is Domino’s Pizza (LSE: DOM).

Domino’s is one of the most potent brands on the UK high street, and the company’s franchise business model is highly profitable.

Return on capital employed has averaged 44% for the past six years. Earnings per share have grown at a compound annual rate of 23% since 2013. 

As the firm has gone from strength to strength, shareholders have been well rewarded. Shares in the company have produced a total annual return of 12.5% over the past decade, although the stock has come off the boil recently as analysts have started to question whether or not the group’s growth is sustainable. I think it is, purely because of the reputation of the Domino’s brand across the UK and around the world. 

Analysts have pencilled in earnings per share growth of 23% for 2019, and on this basis, the stock is trading as a forward P/E of 17.5. I believe this undervalues the company’s brand value and long-term potential. 

The post 3 FTSE 250 stocks I think Warren Buffett would love appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Britvic. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Domino’s effect

UK system sales rose 3.9%, a performance the group described as “solid”, with sales in the Republic of Ireland up 2.4% in local currency terms. The group continues to expand, opening 12 stores in Q3, while online sales also grew at a healthy pace, up 7.2% in the UK, and 9.9% in Ireland. Online now accounts for 90.9% of delivery sales.

Management has reviewed its international markets, which include Switzerland, Iceland, Norway and Sweden, and decided to exit them “in an orderly manner.” That’s bad news for delivered pizza lovers in Oslo, but outgoing CEO David Wild concluded that “whilst they represent attractive markets, we are not the best owners of these businesses.”

That seems to make more sense than battling on in the face of “disappointing” international system sales, which were “flat year on year in local currency and down 2.7% on a reported basis in Q3.”

Wild and woolly

Domino’s has also been caught up in a bitter dispute with franchisees over their share of the company’s profits, rumoured to have been worsened by Wild’s hard man tactics and, today, he said a resolution would take time, with no settlement before 2020.

In August, the Fool’s Paul Summers noted that Domino’s no longer holds a net cash position, but instead has net debt of £239m. That doesn’t seem too onerous for a business with a market-cap of £1.29bn. But I’m deterred by its forecast valuation of 17.9 times earnings, for a stock that’s trading 20% lower than three years ago.

Domino’s is an established brand but faces plenty of competition in a crowded home food delivery market, and has serious internal issues to resolve as it wave goodbye to the Wild times. I think you can find better opportunities elsewhere, such as these two Brexit-proof stocks.

Bother for the Brothers 

Fund manager Rathbone Brothers (LSE: RAT) is having a bad time of it with its share price down more than 10%. That comes as investors recoiled at today’s trading update, with its key Investment Management arm suffering net investor outflows in a “difficult market for savings.”

Total funds under management did rise 4.4% year-on-year to £49.4bn at 30 September, over a period when the FTSE 100 fell 1.4%, while gross quarterly organic inflows in Investment Management “remained resilient” at £800m, same as last year.

However, net quarterly outflows in Investment Management totalled £200m, against net inflows of £6.9bn last year (mostly down to acquiring Speirs & Jeffrey). Today’s interim statement blamed “ongoing weak investor sentiment and investment manager departures,” together with anticipated outflows from short-term discretionary mandates.

Worse, this is expected to continue to weigh on net growth in funds under management and administration in 2020 too.

Today’s volatile markets are tough for asset managers, and they will get tougher if the global economy continues to slow. The Rathbone Brothers share price has grown a third over the last three years, but today’s pricey valuation of 18.3 times earnings hardly tempts, while the 2.9% forecast yield isn’t enough compensation.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Group system sales — that’s everything sold by franchised and corporate stores — came in 4.7% higher than over the same period in 2018. Sales in the UK and Ireland rose 5.5% to £596m with 82% of orders being made online.

Performance overseas, however, wasn’t quite so great with system sales falling 3.4% (but pretty much flat when currency fluctuations are taken into account). Indeed, Domino’s recorded an operating loss of 6.4m for this part of the business — a big increase on the £1.8m loss reported over the first half-year of trading in 2018.  Trading in Norway was particularly poor, according to the £1bn cap, and it also saw “increasing losses” in Sweden and Switzerland. As a result of this, group underlying pre-tax profit fell 7.4% to £42.3m. To make matters worse, outgoing CEO David Wild reflected that trading visibility for its International business “remains limited“. 

Despite opening 13 new stores over the trading period (bringing its total store estate to 1,272), Domino’s also continues to face the wrath of its 70 franchisees over their share of profits. A solution that satisfies both parties is expected, but unlikely until some time next year. 

Worth buying a slice?

The Domino’s share price has been stuck in a trading range of between 225p and 275p since the start of 2019. Considering that investors’ initial enthusiasm for the shares as markets opened quickly dissipated, it seems likely that this will continue to be the case for a while to come. Of course, there’s always the possibility that Domino’s could follow the majority of other stocks and head southwards in the short term if the US-China trade war further intensifies and everyone runs for the exits.

That said, I can’t help but think that a forecast price-to-earnings ratio (P/E) of 14 looks pretty cheap considering its average on this metric over the last five years has been 25. In addition to this, Domino’s yields a decent 4.3% based on analyst estimates of a 10.1p per share cash return in 2019. That’s a nice bit of income for a stock that’s traditionally only featured on growth-focused investors’ watchlists.

Good value as I think the shares are, however, it’s worth highlighting a couple of things. On the downside, levels of debt have been rising over the last few years to such an extent that Domino’s no longer boasts a net cash position. Indeed, net debt came in at almost £239m by the end of June — a 31% rise in 12 months — as a result of “Brexit-related stock building” and “timing issues“. A small reduction on this burden to somewhere between £220m and £230m is expected at the end of the year.

To be clear, I don’t believe this is a reason not to own the shares, but I do think the fact that higher interest costs are increasingly impacting profits is something prospective owners might wish to keep an eye on.

There’s also the aforementioned issue that the company needs to find a new leader. Again, this doesn’t necessarily spell doom but may impact investor sentiment towards the company in the short term, particularly if a replacement isn’t found within the current financial year to resolve the issues with franchisees.

The post This FTSE 250 growth stock looks too cheap to me. Time to grab a slice? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Over the past 15 years, this company has smashed all expectations and as the business has gone from strength to strength, shareholders have been well rewarded.

Indeed, over the past 15 years, the stock has produced an annualised return of 19.4%, turning every £10,000 invested in the business into £142,910. There’s only a handful of other firms that have produced the same kinds of returns for investors during this period. 

A small setback

Unfortunately, after the stock peaked at 375p in August 2016, Domino’s investors have been left wanting. At the time of writing, the stock is nearly 40% below this all-time high.

Several things have gone wrong for the company over the past three years. For a start, it has fallen out with several franchisees, who are concerned about the group’s rate of expansion and the impact it will have on their profits. Franchisees also want more help from the parent business to help cover rising costs. On top of this, the company’s international expansion is not going to plan. Management wanted this part of the business to break even in 2019, but weak sales growth means yet another year of losses.

Still, despite these factors, the underlying business continues to expand. UK sales increased by 3.1% on a like-for-like basis in the 13 weeks to the end of March. If this trend continues, analysts have pencilled in earnings growth of 5.8% for the year as a whole, below the five-year average of 19%, but impressive considering the headwinds the group is facing.

And based on these forecasts, shares in the fast food group are dealing at a forward P/E of just 14, the lowest valuation in five years, which looks too good to pass up in my opinion. Historically, the company has commanded a valuation of 30 times earnings, implying that when franchisee relations settle down, the stock could double from current levels.

Cash is king

The second FTSE 250 growth champion I think has the potential to double investors’ money again is Wizz Air (LSE: WIZZ).

Shareholders who bought into the low-cost airline’s growth story shortly after its IPO in the summer of 2016, have already seen a return of more than 100%, and with City analysts expecting earnings growth to average nearly 20% per annum for the next two years, I think there’s a good chance the shares could double again from current levels.

Based on current City forecasts, the stock is trading at a 2021 PEG ratio of 0.4, and if you strip out cash, the valuation becomes even more attractive. At the end of its 2019 financial year, the company had a net cash balance of £1.2bn, which is around half of its £2.4bn market capitalisation at the time of writing.

Based on analysts’ current projections, the shares are dealing at a 2021 P/E of 11.1, Wizz’s colossal cash balance suggests its cash-adjusted valuation could be around half of that, which suggests there could be a potential upside of nearly 100% for the stock from current levels when compared to the sector average of P/E of 10.1. 

The post These two FTSE 250 stocks have doubled investors’ money. I think they will again appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Domino's Pizza and Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Reliable delivery

Takeaway giant Domino’s Pizza Group (LSE: DOM) now has 1,106 stores across the UK. The firm’s widespread reach has helped make it very successful — the shares have risen by 255% over the last 10 years.

However, this investor favourite is facing headwinds as it tries to continue expanding. Domino’s shares have fallen by about 35% over the last year. Although future growth may be slower, I believe this could be a good opportunity to buy into a reliable long-term performer.

The firm’s latest trading figures show that UK and Ireland sales rose by 4.8% to £299.3m during the first quarter, while like-for-like sales were 3.1% higher in the UK and 6.8% higher in Ireland. Online orders now account for more than 80% of all sales.

What’s the problem?

Domino’s franchisees — who own and run the stores — appear to be resisting the firm’s attempts to open new stores.

The franchise system works by allocating each store a territory within which it’s the only Domino’s. But in order to keep expanding, the company wants to split these territories into smaller areas so that it can open more stores.

According to press reports, franchisees are pushing back against these plans, fearing that their returns will fall.

The other problem facing the firm is that its efforts to expand into Europe are not going well. International sales fell by 2% during the first quarter and the company says that it now expects a loss from its overseas operations this year.

It looks to me like the company might close down some of its overseas operations if things don’t improve soon, but that wouldn’t bother me. I see the mature UK market as a great source of reliable cash and steady growth.

I’m confident the firm will reach a new deal with its franchisees. In the meantime, Domino’s shares look cheap to me on 11 times forecast earnings, with a 4.1% dividend yield. I’d buy. 

Plain sailing

Another successful growth business that looks good value to me at the moment is FTSE 100 cruise ship operator Carnival (LSE: CCL). It’s the biggest company of its kind in the world, with brands including P&O Cruises, Cunard, Holland America and Princess Cruises.

Trading at about £40, Carnival shares have fallen by about 25% from the highs seen in 2017. Although the company is facing some pressure on costs due to higher fuel prices and exchange rates, growth is continuing and analysts expect earnings to rise by 5% this year.

At the end of March, the firm said that advanced bookings for 2019 were ahead of the same point last year, with comparable pricing. This has been achieved despite the group adding new ships this year, suggesting that customer demand is still growing fast.

Although there’s a risk that cruise ship operators will end up with too much capacity at some point, as yet there’s no sign of this. Carnival’s role as the largest player in this sector makes it a good long-term bet in my view. With the shares trading on 11 times 2019 forecast earnings and offering a 3.9% yield, I think now could be a good time to buy more.

The post 2 dirt-cheap growth dividend stocks I’d buy with £2,000 today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival and Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today I want to explain why I think BT Group (LSE: BT-A) could be an ideal buy for ISA income investors. I’ll also look at a smaller firm with an impressive track record and a very popular brand.

Why I’ve bought BT

BT’s problems are no secret. Flagging growth, a £5bn pension deficit and net debt of £11.1bn mean that the group’s dividend has come under pressure.

Some investors will tell you that the dividend must be cut and the business will never be a good investment. I’m not so sure. Despite its lacklustre performance in recent years, this is still a surprisingly profitable group.

During its 2018 financial year, BT generated an operating margin of 14.3% and a return on capital employed (ROCE) of 10.4%. This second figure measures profit against each £1 of capital invested in the business.

These aren’t bad figures. And they look even better when you compare them to Vodafone, which generated an operating margin of 9.2% and a ROCE of 3.7% over the same period.

My view: Underlying earnings are expected to fall this year and the dividend is still at risk. But new chief executive Philip Jansen and chairman Jan du Plessis have extensive experience. I share my colleague Graham Chester’s view that they are likely to turn the business around.

BT shares now trade on just 8.6 times forecast earnings and offer a 6.9% dividend yield. For long-term investors, I reckon that’s cheap. I’ve added some to my ISA and rate the stock as a buy.

Takeaway problems

My second pick is takeaway operator Domino’s Pizza Group (LSE: DOM). As with BT, this firm needs no introduction. But after years of impressive growth, momentum has slowed.

Although sales in the group’s core UK and Ireland business rose by 7% to £1,115.4m last year, profit margins came under pressure. The group’s underlying pre-tax profit fell by 1.1% to £93.4m and net debt rose from £89.2m to £203.3m.

One problem is that growth in a number of new European markets has been disappointing. But a bigger problem seems to be that the firm’s UK franchisees are pushing back against plans for continued expansion.

There seem to be two issues. The first is that opening new stores means splitting (reducing) the territories of existing stores. The second problem is that according to the Domino’s Franchisee Association, the parent company has cut franchisees’ share of profits from 61% to 50% over the last four years.

A new boss?

Problems with franchisees had been discouraging me from investing — if franchisees won’t play ball, then Domino’s growth plans could be derailed.

However, the company has now announced it has started work on succession plans for both the chief executive and chairman. A change of management could be what’s needed to find a new balance with franchisees.

In the meantime, Domino’s is starting to look cheap to me. The shares have fallen by nearly 30% over the last year and now trade on 14 times 2019 forecast earnings, with a dividend yield of 4.4%.

My view: I’m starting to see value here. I’d rate Domino’s as a possible buy at current levels.

The post Why BT shares could be a perfect buy for my 2019 ISA appeared first on The Twelfth Magpie.

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Roland Head owns shares of BT GROUP PLC ORD 5P. The Motley Fool UK has recommended Domino's Pizza. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Franchise fun

The pizza and pasta delivery franchise is up more than 6% this morning after reporting a 12.6% rise in group statutory revenue to £534.3m in its full-year 2018 preliminaries. Despite that tasty topping, the base line case was a bit soggy. 

Group underlying profits before tax fell 1.1% to £93.4m, which excludes non-underlying charges of £31.5m relating mainly to international impairments, UK supply chain transformation and integration costs. Throw those into the mix and group statutory profits fell 24% to £61.9m.

Growing pains

CEO David Wild admitted that “2018 was a mixed year”. In its key UK and Ireland markets, which make up 90% of the business, the group extended its “excellent track record of growth and cash generation”, and responded well to the “challenging environment for the casual dining market”.

Its franchisees also opened 59 new stores, creating more than 2,000 jobs and sold a record 102m pizzas, although the pace of the rollouts is slowing despite it completing a new supply chain centre in Warrington. Wild also admitted to “growing pains” internationally, which hampered overall financial performance.

Going global

The £1.14bn FTSE 250 group is now has a pizza loving market of more than 100m, with “little, if any, global brand competition”, but getting there is going to take time and money, even if the international business is targeted to break even this year. Domino’s also faces a franchisee uprising, as they lobby for a greater share of profit.

Investors may be happy with a 5.6% hike in the four-year dividend, but there was no news of another share buyback even though the stock is trading at a four-year low, having fallen 28% in the past 12 months, which some boards would see as an opportunity. It now trades at 13.4 times forecast earnings.

Domino’s offers a tempting forecast yield of 4.4% with cover of 1.7, while earnings are forecast to rise 9% both this year and next. Investors are tucking into its stock today, and Royston Wild has previously hailed it a stock he’d buy and hold for the next 10 years.

Fast food fight back

Takeaway marketplace giant Just Eat (LSE: JE) has given investors a rough ride lately but is now on the comeback trail, rising 40% in the last three months.

Last week the £5.3bn company announced a 43% rise in 2018 revenues to £779.5m, with underlying EBITDA earnings up 6% to just shy of £174m. Orders and active customer numbers also grew strongly. The challenge is that its stock is priced for rapid growth, with a forecast valuation of a whopping 75 times earnings.

Tough times

Worryingly, earnings per share are forecast to drop 26%in  this calendar year as it invests heavily in the business to fight off competition from Deliveroo and Uber Eats. However, earnings are forecast to rebound 64% in 2020, so there is still a strong growth story here. 

Just Eat is a real yo-yo stock, entering the FTSE 100 in November 2017 only to drop out last December then bounce back in earlier this month. As Domino’s noted today, things are tough in the casual dining sector, but there is still an opportunity here.

The post These 2 rapid growth stocks are flying again. Should you hop on board? appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza and Just Eat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.