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One food-related penny inventory I’ve had my eye on for a while is DP Poland (LSE: DPP). Ought to I purchase some shares?
Pizza purveyor
DP Poland owns the grasp franchise for Domino’s Pizza in Poland. As a small-cap with a sub-£100m market capitalization, DP’s shares are buying and selling for literal pennies, 10p, to be actual, at current.
Over a 12-month interval, the shares are up over 40% from 7p right now final yr, to present ranges.
The bull case
The very fact DP is concentrating on, and appears to be succeeding, in an under-penetrated market is interesting. Plus, having the grasp franchise to one of many largest pizza manufacturers on the planet is a plus level. In addition to Poland, the enterprise is venturing into Croatia too. This new avenue might enhance earnings in addition to probably returns too.
Subsequent, I’m buoyed by DP’s enterprise mannequin, specifically its two foremost segments. One is its personal eating places, and the opposite is a sub-franchising mannequin. The latter focuses on promoting franchises and it helps set them up, and takes royalties for the pleasure. It appears this modus operandi is working properly. Since opening its first retailer in Warsaw in 2011, it now possesses 116 shops in Poland, and 4 in Croatia. The enterprise has formidable plans to have 500 shops by 2030.
It must be famous that the enterprise is loss-making. This can be a purple flag, however many small caps are loss-making for quite a few years to begin with. The great signal for me with DP is that the losses appear to be shrinking every reporting interval.
One other constructive for me is the truth that the enterprise is bettering gross revenue margins. It has completed this for the previous three years in a row. If it will possibly proceed on this method, I reckon it could possibly be within the black very quickly. Nevertheless, I do perceive the previous is just not a assure of the long run.
Dangers and my verdict
Firstly, Poland has been battling excessive inflation for a while. In actual fact, it has beforehand had one of many highest inflation charges in Europe simply two years in the past. This makes the agency’s gross revenue margin enhance much more spectacular, if you happen to ask me. Nevertheless, the longer-term fear is that continued inflation might imply increased prices, tighter margins, and the potential for a revenue being additional away.
Subsequent, the enterprise does have some debt to take care of on its stability sheet. This isn’t often a fear as most companies have some type of debt. Nevertheless, DP not too long ago raised funds via shareholders to pay down debt and in addition fund development. As a small cap, it doesn’t have the monetary would possibly to stave off monetary points. Larger debt ranges and an absence of money circulation sooner or later could possibly be deadly.
General, at 10p per share, and an honest development report to this point, I’d be keen to purchase a small variety of shares after I subsequent can. I reckon DP could possibly be a shrewd addition to my holdings for future returns and development.
