Introduction

Domino’s Pizza Enterprises Ltd (DMP) is the largest pizza chain in Australia in terms of store numbers and network sales. It is also the largest franchisee for the Domino’s Pizza brand in the world.

While the Domino’s brand is owned by Domino’s Pizza, Inc, a listed US company, DMP holds the exclusive master franchise rights for the Domino’s brand and network in Australia, New Zealand and a number of European and Asian countries. In 2023, DMP announced its intentions to exit the Danish market, a business acquired in 2019 via receivership after the previous owners breached public trust by failing to meet food safety standards. In the same year, the company strengthened its footprint in Southeast Asia by acquiring stores in Malaysia, Singapore and Cambodia.

As of December 2023, Domino’s Pizza Enterprises extended its operations across 12 markets, with more than 3,800 stores and is the leading international Domino’s franchise.

In early 2024, DMP experienced a record share price drop of 31.1% to $39.50, the lowest price in almost 5 years. The share price plummeted following a withdrawal of DMP’s 2024 outlook and its first half year profit forecast did not meet market expectations due to weak network sales in both Asia and Europe. While the share price slump was primarily due to concerns regarding network sales, it was time for CEO Don Meij and his team to review several performance metrics including the company’s cost of capital. Estimates of the company cost of capital were used in many financial analyses within the company including new store acquisition appraisals and other capital budgeting assessments. As the cost of borrowing escalated post-Covid, it was critical for the company to understand the impact of the changing cost of capital on its operations and valuation.