The Share Centre recommends investors ‘sell' Domino's

As the UK's largest pizza delivery group reports struggling sales Nick Raynor, investment adviser at The Share Centre, explains why they have downgraded Domino's to a ‘sell'.

"Domino's has reported sales growth has slowed in the tough market conditions and we recommend investors to ‘sell' and take profits. The company's sales grew by just 2.4% for the period to 26 June compared to 13.7% the previous year. Despite this Domino's did see a rise in pre-tax profits for the period to £20.1m from £17.5m. 

"For the remainder of 2011 the company plans to hit the market with an increased advertising campaign and introduce new products, with marketing spend planned to be three times as much as in the first half of the year. We feel it could go two ways and such a sharp increase in advertising could lose consumers' interest. However we hope this will result in stronger sales growth as we could see a tougher summer ahead.

"The company has reported its German business is on plan and progressing well albeit slowly as it familiarises itself with the new market. This has great potential for Domino's and the company is on track to have opened six stores in Germany by the end of the year, however we are keen to see more stores open and assess how they are performing.    

"The share price has recovered nicely from its low of 380p earlier in the year and is showing a 5% gain today, overcoming the earlier loss that was seen after the statement was issued. We feel the current share price looks highly valued and recommend investors take the opportunity to ‘sell' and reap the benefits."