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Domino’s and Papa John’sStrategic Valuation Analysis             VS
Agenda•   Restaurant Industry Overview•   Domino’s Company Overview•   Papa John’s Company Overview•   Domino’s Analysis• ...
Global Restaurant Statistics•   $1.6 trillion in revenue in 2010     – Cafes & Restaurants account for 36% ($571 b)•   Mar...
Restaurant Industry Overview• Growth• Challenges• Trends
Commodity Price Index
Informal Dining Segments
QSR Segments               Source: Restaurant State of the Industry               Report Part 1: Food and Beverage © 2011 ...
Pizza Competitors                Source: PMQ Pizza                Magazine September 2011
Pizzeria Rankings                    Source: PMQ Pizza Magazine September 2011
Domino’s Pizza Overview• History• Ownership• Strategies   –   Technology and Innovation   –   Supply Chain   –   Growth   ...
Domino’s Pizza Analysis                                         12 Months Ended                    Common Size(In $Million...
Domino’s Pizza Analysis                                      2012       2013       2014       2015       2016Operating Pro...
Domino’s Pizza Analysis                                                              Terminal Value:   4,785,614PV FCF    ...
Domino’s AnalysisComparable Companies                                             In $ Millions (except ratios)           ...
Papa John’s Pizza Overview•   History•   Growth•   Market Share – 6%•   Strategies    –   Growth Through Quality    –   Be...
Papa John’s Pizza Overview• Ownership   – Insiders/Owners: 24%   – Institutions   – Mutual Funds                http://fin...
Papa John’s Pizza Analysis                                                           Pro-Forma Income Statement 2012 - 201...
Papa John’s Pizza Analysis• Discount Rate (WACC): 6.05% (calculated)   – Terminal Growth Rate: 2.5%   – Risk Free Rate: 2....
Papa John’s Pizza Analysis• Discount Rate: 9.35% (implied)   – Terminal Growth Rate: 2.5%   – Risk Free Rate: 2.5%   – Equ...
Papa John’s Analysis, Cont.• Relative Valuation                                                               In Millions ...
Conclusion                                               Value                                                      ValueD...
Discussion
Pizza Facts•   $30 billion industry•   350 slices per second consumed in US•   61,269 pizza parlors in US•   3-11 year old...
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Strategic Valuation of Pizza Market leaders

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A comprehensive strategic valuation presentation of Domino's verse Papa John's Pizza companies. Methods include DCF, Relative valuation, regression analysis.

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Strategic Valuation of Pizza Market leaders

  1. 1. Domino’s and Papa John’sStrategic Valuation Analysis VS
  2. 2. Agenda• Restaurant Industry Overview• Domino’s Company Overview• Papa John’s Company Overview• Domino’s Analysis• Papa John’s Analysis• Conclusion
  3. 3. Global Restaurant Statistics• $1.6 trillion in revenue in 2010 – Cafes & Restaurants account for 36% ($571 b)• Marked growth is expected to slow to 3% yearly by 2015 – $1.8 trillion by the close of 2015• Trends & Challenges – Unstable food and energy prices – Fragile housing sector – Depleted consumer confidence• Health-conscience Consumers (http://www.reportlinker.com/ci02054/Restaurant-and-Food-Services.html)
  4. 4. Restaurant Industry Overview• Growth• Challenges• Trends
  5. 5. Commodity Price Index
  6. 6. Informal Dining Segments
  7. 7. QSR Segments Source: Restaurant State of the Industry Report Part 1: Food and Beverage © 2011 NetWorld Alliance LLC
  8. 8. Pizza Competitors Source: PMQ Pizza Magazine September 2011
  9. 9. Pizzeria Rankings Source: PMQ Pizza Magazine September 2011
  10. 10. Domino’s Pizza Overview• History• Ownership• Strategies – Technology and Innovation – Supply Chain – Growth – Healthy Pizza in Schools • Domestic v. International – Marketing • “Oh Yes We Did!”
  11. 11. Domino’s Pizza Analysis 12 Months Ended Common Size(In $Millions) FY 2009 FY 2010 FY 2011 FY 2009 FY 2010 FY 2011TOTAL NET REVENUES 1,404,057 1,570,894 1,652,193 100% 100% 100%TOTAL COST OF SALES 992,981 1,132,305 1,181,677 70.7% 72.1% 71.5%OPERATING MARGIN 386,976 438,589 470,516 27.6% 27.9% 39.8%DEPRECIATION 24,100 24,100 24,000 1.7% 1.5% 2.0%GENERAL AND ADMINISTRATIVE 197,467 210,887 211,371 14.1% 13.4% 17.9%INCOME FROM OPERATIONS 189,509 227,702 259,145 13.5% 14.5% 21.9%INTEREST INCOME 683 244 296 0.05% 0.02% 0.0%INTEREST EXPENSE (110,945) (96,810) (91,635) 7.6% 6.7% 6.3%INC. B/F PROV. FOR INCOME TAXES 135,522 138,945 167,806 9.7% 8.8% 10.2%PROVISION FOR INCOME TAXES 55,778 51,028 62,445 41.2% 36.7% 37.2%NET INCOME 79,744 87,917 105,361 5.7% 5.6% 6.4%
  12. 12. Domino’s Pizza Analysis 2012 2013 2014 2015 2016Operating Profit 296,975 302,769 306,709 309,370 311,160Taxes 114,038 116,263 117,776 118,798 119,486NOPAT 182,937 186,506 188,933 190,572 191,675Plus: Depreciation 37,920 38,533 38,949 39,231 39,420Less: Capex (25,566) (26,845) (28,187) (29,596) (31,076)Less: Change in NWC 521 (749) (509) (344) (231) Firm FCF: 195,811 197,445 199,185 199,862 199,787 AssumptionsRevenue Growth: 5-year Forecast PeriodCS: 72.0%G&A: 12.8%Taxes: 38.4%Int. expense: 7.0%Op. NWC 2.20%Capex: 5%DA: 1.80%
  13. 13. Domino’s Pizza Analysis Terminal Value: 4,785,614PV FCF 183,380 173,170 163,606 153,740 143,925 PV(Terminal Value): 3,447,515Total PV(FCFF + TV) 4,265,335Less Current Debt 1,450,369Estimated Equity Value 2,814,966 2,180,000 (as of 4/29/12)Value per share 48.73 37.14 (as of 4/29/12)Appreciation in price 31.2%Discount Rate (WACC) 6.78%Long-term growth rate 2.50%
  14. 14. Domino’s AnalysisComparable Companies In $ Millions (except ratios) Forward PE PE Price Revenue Market Shares NetAs of April 27, 4:00PM Ratio Ratio PSR /Share / Share Value O/S Income Sales WeightQSR Pizza SegmentPizza Hut (YUM) 23.19 19.24 2.59 73.32 28.13 33,730 460.00 1,510 12,940 20%Papa Johns (PZZA) 18.26 14.55 0.80 40.17 50.33 974 24.24 56 1,220 50%QSR SegmentMcDonalds (MCD) 18.20 15.49 3.56 97.43 26.90 99,240 1,020.00 5,560 27,440 10%Starbucks (SBUX) 34.39 24.75 3.75 57.43 16.18 43,270 753.40 1,280 12,190 10%Tim Hortons (THI) 24.28 18.78 3.07 57.85 18.39 9,090 157.14 388 2,890 10% 21.46 17.03 1.96 56.02 36.94 22,393 297.17 1,053 7,450 100% Value Value PPS Diff.Forward PE Valuation 1,793.75 31.05 -17.7%PE Valuation 2,260.50 39.13 3.7%PSR Valuation 3,227.40 55.87 48.0%Dominos Value 2,180.00 37.74
  15. 15. Papa John’s Pizza Overview• History• Growth• Market Share – 6%• Strategies – Growth Through Quality – Better Ingredients. Better Pizza – International Expansion – Supply Chain – QC Centers – An App for ordering
  16. 16. Papa John’s Pizza Overview• Ownership – Insiders/Owners: 24% – Institutions – Mutual Funds http://financehttp://finance.yahoo.com/q/pr?s= PZZA+Profile• Governance .f – Founder, CEO and Chairman – 3 Charter Committees• Stock History – June 1993 IPO (PZZA) - $4 – Today: creeping over $40
  17. 17. Papa John’s Pizza Analysis Pro-Forma Income Statement 2012 - 2015 2011 Common Size 2012 2013 2014 2015• Assumptions Total revenues Cost of sales 1,217,882 126,887 100.00% 1,267,693 10.04% 127,229 1,313,204 1,353,782 1,388,844 131,797 135,869 139,388 Salaries and benefits – Revenue growth 142,093 12.21% 154,840 160,398 165,355 169,637 Advertising and related costs 49,035 4.11% 52,165 54,038 55,708 57,151 Occupancy costs 32,278 2.77% 35,167 36,430 37,556 38,528 • 4.09% to 2.59% Other domestic Company-owned restaurant Total operating expenses expenses 75,558 425,851 6.34% 35.48% 80,413 449,814 83,300 465,963 85,874 480,361 88,098 492,802 – Tax Rate: 32% Cost of sales 426,955 34.16% 433,103 448,651 462,515 474,494 Salaries and benefits 35,141 2.98% 37,745 39,100 40,308 41,352 Other operating expenses 53,188 4.24% 53,761 55,691 57,412 58,899 – Operating Leases Total domestic commissary and other expenses International operating expenses 515,284 35,674 41.38% 2.70% 524,609 34,228 543,442 35,457 560,235 36,553 574,745 37,499 General and administrative expenses 111,608 9.58% 121,388 125,746 129,632 132,989 • Capitalize Other general expenses Depreciation and amortization 9,767 32,681 0.91% 2.79% 11,504 35,343 11,917 36,611 12,286 37,743 12,604 38,720 Total costs and expenses 1,130,865 92.35% 1,170,735 1,212,764 1,250,238 1,282,620 Operating income 87,017 7.65% 96,959 100,440 103,543 106,225 Investment income 755 0.07% 836 866 893 916 Interest expense -4,668 -0.31% (7,082) (6,512) (5,928) (5,592) Income before income taxes 86,275 7.41% 93,885 97,255 100,260 102,857 Income tax expense 26,888 30,043 31,122 32,083 32,914 Net income, including noncontrolling interests 59,387 63,842 66,134 68,177 69,943 Less: income attributable to noncontrolling interests -3,732 -0.32% (4,002) (4,146) (4,274) (4,384) Net income, net of noncontrolling interests $55,655 4.73% 60,008 62,162 64,083 65,743
  18. 18. Papa John’s Pizza Analysis• Discount Rate (WACC): 6.05% (calculated) – Terminal Growth Rate: 2.5% – Risk Free Rate: 2.5% – Equity Risk Premium: 5% 2012 2013 2014 2015 Terminal value Net income, net of noncontrolling interests 49,100 51,731 54,129 56,086 Plus: Depriciation and Amortization $47,965 $49,233 $50,365 $51,342 Operating Net Working Capital $23,716 $23,875 $24,035 $24,196 Less: Increase in Net Working Capital 10,059 159 160 161 Less: Capex 31,358 29,321 27,415 25,634 Projected FCFF $55,647.56 $71,485 $76,919 $81,634 $2,359,623 Present value of FCFF 52,475 63,566 64,498 64,549 1,865,794 Total present value of FCFF 2,110,882
  19. 19. Papa John’s Pizza Analysis• Discount Rate: 9.35% (implied) – Terminal Growth Rate: 2.5% – Risk Free Rate: 2.5% – Equity Risk Premium: 5% 2012 2013 2014 2015 Terminal value Net income, net of noncontrolling interests 49,100 51,731 54,129 56,086 Plus: Depriciation and Amortization $47,965 $49,233 $50,365 $51,342 Operating Net working Capital $23,716 $23,875 $24,035 $24,196 Less: Increase in Net operating capital 10,059 159 160 161 Less: Capex 31,358 29,321 27,415 25,634 Projected FCFF $55,647.56 $71,485 $76,919 $81,634 $1,219,749 Present value of FCFF 50,885 59,772 58,811 57,074 852,779 Total present value of FCFF 1,079,320
  20. 20. Papa John’s Analysis, Cont.• Relative Valuation In Millions (except ratios) Forward PE Price Revenue / Market Shares Net Comparable Companies PE Ratio Ratio PSR /Share Share Value O/S Income Sales Weight QSR Pizza Segment Pizza Hut (Yum! Brands) 23.19 19.24 2.59 73.32 28.130435 33730 460 1510 12940 20% Papa Johns 18.26 14.55 0.8 40.17 50.330033 973.8 24.24 55.65 1220 Dominos 21.72 16.65 1.28 37.14 28.561537 2150 57.77 105.36 1650 50% QSR Segment McDonalds 18.2 15.49 3.56 97.43 26.901961 99240 1020 5560 27440 10% Starbucks 34.39 24.75 3.75 57.43 16.179984 43270 753.4 1280 12190 10% Tim Hortons 24.28 18.78 3.07 57.85 18.391243 9090 157.14 388.26 2890 10% 23.185 18.075 2.196 54.505 26.054174 22981 313.939 1077.506 7665 100% Value Value PPS Difference Forward PE Valuation $1,005.87 $41.50 9.50% PE Valuation $1,290.25 $53.23 40.45% PSR Valuation $2,679.12 $110.52 191.64% Papa Johns Valuation $918,640 $37.90
  21. 21. Conclusion Value ValueDominos Valuation Summary Value PPS Diff. Papa Johns Valuation Summary Value PPS Diff.DCF 2,875 49.77 31.89% DCF 1,950 80.46 112.30%Forward PE 1,794 31.05 -17.7% Forward PE 1,006 41.50 9.50%PE 2,260 39.13 3.7% PE 1,290 53.23 40.45%PSR 3,227 55.87 48.0% PSR 2,679 110.52 191.64%Dominos Today 2,180 37.74 Papa JohnsToday 919 37.90
  22. 22. Discussion
  23. 23. Pizza Facts• $30 billion industry• 350 slices per second consumed in US• 61,269 pizza parlors in US• 3-11 year old favorite food for lunch or dinner• Average American eats 46 slices; – 23 pounds of pizza annually – 3 billion pizzas per year overall• Americans consume 251,770,000 pounds of pepperonis per year• Most popular “ethnic” food in America – Source: http://library.thinkquest.org/J0112790/facts.html

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