INVESTMENT EXTRA: It's time to grab a slice of Domino's dreams


A nervous, slightly manic middle-aged woman strides onto the stage. She's wearing a gold cocktail dress, black tights and a pair of white peep toe shoes. It's an oddball ensemble that looks like it's been thrown together by Stevie Wonder and Ray Charles.

The audience tries but fails to suppress a collective snigger. The judge is patient and polite.

But even he rolls his eyes when the chubby 48-year-old with the mad curly hair and the ruddy complexion says she wants to be the next Elaine Page. The 500 guests in the packed auditorium roar with laughter.

Susan Boyle on Britain's Got Talent

Sensation: Susan Boyle on Britain's Got Talent

But when the lights go down the magic begins as Susan Boyle, from Blackburn in West Lothian, hypnotises a nation with a flawless and emotional rendition of I Dreamed A Dream from Les MisÈrables. The theatre erupts in applause, Amanda Holden, one of the panellists, sits open mouthed.

And so the phenomenon that is Subo is born. The YouTube clip of her first appearance on Britain's Got Talent is at 90m hits and counting.

Boyle herself is still struggling with the international fame that the brilliant and unexpected seven minute prime time debut has brought.

Devotees of BGT will remember that Boyle was the runner-up. The urban dance troupe Diversity topped the phone-in poll.

The real winners, of course, were the brains behind the format - Simon Cowell's Syco TV, the production companies Freemantle and Thames, and ITV.

But BGT's success has also provided a platform for another phenomenon, this time from the world of business.

Domino's Pizza is the main sponsor of the programme. And its ascent from AIM-listed minnow to FTSE 250 fixture has been every bit as remarkable as Subo's rags-to-riches story.

Its sponsorship of Britain's Got Talent, which starts tonight, gives a small taste of the entrepreneurial savvy of boss Chris Moore and how his team have built up the business from handful of takeaways to 616 today.

The multi-million pound deal with ITV, negotiated at the onset of the recession in 2008, more than pays for itself by hitting that preprandial eight o'clock sweetspot that helps the company shift tens of thousands of extra pizzas every Saturday of BGT's run.

Not that inspired marketing and the eye for a bargain comes close to explaining Domino's success.

The group holds the British and Irish master franchise for the American pizza firm of the same name.

It oversees a large chain of takeaway franchises that are owned and run by entrepreneurs.

Domino's itself makes its money from the fee paid by franchisees - which is equivalent to 5pc of a restaurant's turnover - and from supplying the dough and ingredientsto operators. The model has been hugely successful and excites the City on a number of levels.

Domino's Pizza triumph

The franchise system means the main investment in premises and equipment is carried out by the franchisee, who also bears most of the risks that come with opening a new store.

Even the marketing costs are borne by the businessmen and women who run its stores.

This is split into a £20m fund for national advertising and £16.5m for local campaigns such as leafleting last year.

Domino's is hugely cash generative and has an impressive track record of returning that money to investors as dividends or in the form of share buybacks.

The recession has been positive for the business. Recent data revealed it won almost a million customers during the downturn as eating in became the new eating out. Longer-term, the Domino's story is underpinned by store openings.

Based on the current expansion programme, the company will grow to 1,108 outlets in the next decade, according to Brewin Dolphin.

This, the broker says, would see it generating sales of over £1bn and a whopping 50p a share of earnings compared with EPS of 13.5p last year.

While the reasons to buy this stock are well rehearsed, there are a number of factors that could stall this growth story.

Earlier this week they were outlined in a research note by Panmure Gordon analysts Simon French and Lindsey Kerrigan entitled As Good As It Gets.

In it, the pair argue like-for-like sales growth cannot possibly continue indefinitely at its current impressive rate.

And the improvement in the economy-has at least one logical downside-for Domino's - advertising costs are set to rise. Take the Britain's Got Talent contract, which is up for renegotiation next year.

It is almost certain the firm will have to pay considerably more than it currently does to sponsor a prime-time programme that attracts 19m peak-time viewers.

And the pair say that a valuation of 23.5 times prospective earnings looks 'a little demanding'.

And it does, until you realise the shares traditionally trade in the mid-20s and were at one point sat on a heady P/E of 40 times EPS.

The stock's fans say the rather steep earnings multiple is the price you pay for a growth stock which also has defensive characteristic.

OUR VERDICT: After that Panmure sell note, the stock lost a little momentum. But this is a buy for the long term. Get in now and set a stop-loss of 300p.

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