UK share prices continue to struggle for momentum on Friday as fears of Federal Reserve rate hikes saps confidence. The FTSE 100 for instance was last down half a percent from last night’s close and dealing at one-week lows. And the DP Poland (LSE: DPP) has really taken a pasting too following the release of fresh trading numbers.
DP Poland — the master franchisee of the Domino’s Pizza brand in the Eastern European country — was trading 12% lower on Friday at 8.75p per share. It had touched 15-day troughs of 8.51p earlier in the session.
Losses soar despite sales jump
UK share traders took fright following news that DP Poland’s losses had widened considerably during 2020. It said that pre-tax losses had ballooned to £5.8m last year, from £3.5m in 2019, as costs leapt.
Revenues at DP Poland rose 7% year-on-year in 2020 to £15m as system sales increased 5% to £17.4m. Sales were hit hard at the company’s restaurants due to Covid-19 lockdowns in Poland during the spring and autumn. But this was more than offset by the boom in the food delivery market as people stayed at home.
According to chief financial officer Malgorzata Potkanska: “The group, with its short delivery times, contactless payments and contactless delivery/collection service has benefitted from this sector’s growth despite the unfortunate circumstances.”
However, DP Poland’s profits column took a almighty whack from soaring costs. Direct costs surged 10% year-on-year in 2020 to £13m, caused in large part by a “substantial” rise in the country’s national minimum wage. Increased maintenance costs for its fleet of delivery scooters, and costs related to the provision of personal protection equipment (PPE), also hit the bottom line.
Margins at the business dramatically shrank to 1.9% in 2020 from 9.8% a year earlier.
Why I’d buy DP Poland
DP Poland also provided a trading update for the first five months of 2021. Delivery sales were up 14% year-on-year and 28% from the corresponding 2019 period. The rise reflects the strength of the Polish food delivery market and the impact of DP Poland’s acquisition of rival pizza chain Dominion late last year.
However, like-for-like system sales were down 1% year-on-year between January and May as coronavirus restrictions hit the company’s dine-in operations.
There’s a lot I like about DP Poland. As master franchisee of Domino’s Pizza it benefits greatly from the enormous brand power of the American brand. It also gives UK share investors the chance to exploit one of Eastern Europe’s major emerging markets, a territory where soaring wealth levels could deliver strong and sustained growth in the food delivery market.
That’s not to say it doesn’t carry some risk, of course. As 2020’s results show, rising costs are a problem it has to get to grips with. And the AIM-listed business also operates in a super-competitive marketplace. All that said, I still think this UK share has the tools to deliver delicious shareholder returns over the long term.