Hieu Nguyen

Valuation Description: Domino Pizza (DPZ)

I, Valuation Overview

Free Cash Flow to Equity is going to be used as the primary valuation method. Adjusted Present Value (APV) and
Relative Valuation methods (EV/EBITDA) will also be utilized as supporting valuation methods. Additionally,
when valuing Domino Pizza, the scenario analysis will also be included with three main scenarios (bull, bear, and
neutral). In sum, the value per share of Domino Pizza is $380.04, which is $10.04 higher than the current market
price, $370.

II, Valuation Model (FCFE)

A WACC

The WACC for Domino Pizza is 4.55%, with the cost of debt is 0.8% (Bloomberg), and the cost of equity is 6%,
73% of equity, and 27% of the debt. About the cost of equity, the beta of the company is estimated to be 0.36, risk-
free rate (10-year Treasury note) is 1.92%, and the market risk premium is 6.48% (Bloomberg)

B, Assumptions

The assumption for revenue is fairly optimistic because of the current market share, competitive advantages, and the
future expansion plan of Domino in the future. In 2020, the restaurant industry worldwide is facing a decline in
terms of same-store sales, which is mainly due to the dining-room closings and other social distancing to limit the
spread of the Covid19. With 94.4% is the franchised store along with the quick delivery service, Domino is less
affected by the Covid19 than the full-service, company-owned, and casual restaurants. However, the 2020 revenue
growth is expected to drop by 10%. The period between 2021-2024 will see the huge growth in revenue of Domino
Pizza since this company has the expansion plans in China to open 1000 restaurants with the expected growth in
same-store sales of 22% (Bloomberg) and the expansion plan in the US from 2021-2023. The revenue growth of
Domino Pizza will start to be slow and stable in 2026-2029 after the rapid growth in sales during the period of 2021-
2024. With the revenue as the main driver, along with the observation of the historical trend and data, the COGS and
SGA have a positive relationship with the revenue. During the period of 2021-2024, the COGS and SGA will see
huge growth due to the expansion plan of Domino and will decrease in 2026-2029 because of the decrease in the
growth of the same-store revenue.

For operating asset growth, it has a positive relationship with the growth in revenue; however, this relationship is not
strong, meaning the growth in revenue does not have much effect on the operating asset growth. In terms of debt
assumption, according to the historical data and trends, the debt-to-asset of the ratio of Domino Pizza is around
250%-300%; therefore, my assumption for a debt ratio of Domino Pizza is 300%. According to Blomberg, Domino
is a company with a good credit rate since this company always maintain good profitability as well as the amount of
cash-on-hand. Therefore, my assumption for the interest rate of Domino Pizza is 0.8%.

The additional fund needed (AFN) of Domino Pizza is forecasted to be fully negative from 2020-2029, meaning this
company has the plan to buy back stock. Therefore, my assumption for the stock repurchase of Domino Pizza in
10% from cash and 90% from debt.
Appendix:

Figure 1: Domino Pizza’s Assumption

Figure 2: Domino Pizza’s FCFE Valuation