DP POLAND PLC (DPP) — Investment Research Note

Executive summary

DP Poland operates the exclusive Domino's Pizza master franchise in Poland (135 stores) and Croatia (6 stores), plus the recently acquired Pizzeria 105 brand (71 franchised stores) in Poland. The Group has executed a multi-year turnaround under CEO Nils Gornall, lifting system sales from £46m (2023) to £61.4m (2025) with pre-IFRS16 EBITDA up from breakeven to £2.6m, while transitioning from a capital-heavy corporate model to a franchise-led one (33% franchised at YE 2025 vs 12% YE 2024). The single most important valuation point today is whether the market correctly capitalises (i) the operating leverage from continued network expansion towards 200 stores by 2027 and (ii) the Pizzeria 105 conversion programme — both of which require near-flawless execution to justify the current ~12x post-IFRS16 EBITDA multiple.

Fair value estimate

• Methodology: Forward EV/EBITDA (post-IFRS16), cross-checked vs EV/system sales. The business is not yet sufficiently FCF-generative for a clean DCF, and the franchise transition makes a corporate-store-only P&L unrepresentative of future earnings.
• Key assumptions: 2026E system sales ~£72m (+17% on £61.4m, per management guidance of "double-digit growth"), 2026E post-IFRS16 EBITDA £7.5–8.5m (extrapolating 2025's £6.3m at modest operating leverage from Pizzeria 105 conversions + commissary consolidation). Apply 12–15x EV/EBITDA — in line with mid-cap European QSR franchisees and well below the listed Domino's parents.
• Fair value range: 12x × £8m = £96m; 15x × £8m = £120m → £96m–£120m market cap, equivalent to roughly 10p–13p per share on ~944m shares.
• vs. current £76.9m / ~8p: upside ~25–55% to the midpoint of ~11p.
• This range assumes the franchise transition delivers, EBITDA scales as guided, and no fresh equity issuance. A downside case (execution slips, dough/labour cost pressure) at 10x £6.3m = £63m / ~6.5p is plausible.

Sector context

Confirmed sector: Travel and Leisure (ICB), within consumer discretionary QSR/restaurants. Profile is below typical large peers on quality and scale, but growth/leverage profile is higher than mature franchise peers. Comparable listed names: Domino's Pizza Group plc (UK master franchisee, the company's largest shareholder), Domino's Pizza Inc (US parent), Domino's Pizza Enterprises (Australia/Europe). DPP is a sub-scale, frontier-market version of these — higher growth potential, materially lower margins and balance-sheet quality.

Investment thesis (3 bullets)

• Franchise transition has operating leverage: franchised share jumped from 12% → 33% in 2025 and is targeted >50% by end-2027; franchise stores delivered 8.4% EBITDA margin in H1 2025 vs Group 8.8% but with materially less capital intensity, generating recurring royalty/commissary fees that scale faster than central costs 2025-09 H1 interim, 2026-01 FY trading update.
• Pizzeria 105 acquisition unlocks accelerated store growth: paid PLN42.3m (~£8.5m) for 90 fully-franchised stores; 17 converted by Q1 2026 with pilot conversions showing +26.3% sales uplift vs prior performance, giving a low-cost path to the 200-store target without organic build cost 2025-03 Strategic Acquisition, 2026-01 FY trading update.
• Strong Q1 2026 momentum on a clean balance sheet: 18.9% system-sales growth and 13.7% order growth in Q1 2026, with the new single commissary capable of servicing 300+ stores, and the Group debt-free at YE 2024 (loan facility undrawn at YE 2025) 2026-04 Q1 trading update, 2025-06 Final Results 2024.

Key risks (3 bullets)

• Execution risk on Pizzeria 105 conversion at scale: only 17 of 71 remaining stores converted as of Q1 2026; management itself flagged "~30% of stores located in areas with territorial constraints" that may not convert, capping the upside 2025-09 H1 interim.
• Inflation and Croatia profitability: Croatia's Q4 2025 order count was negative for the FY and the H1 2025 segment was loss-making before central costs; Polish wage and food cost inflation has repeatedly compressed margins ("growing pressure on food (mainly cheese) and labour costs" in H2 2024) 2025-01 FY trading update, 2025-06 Final Results 2024.
• Cash thin / dilution risk: £1.6m cash at YE 2025 against a business still investing in conversions, commissary consolidation, and store openings; the Group only recently arranged an undrawn loan facility (Nov 2025), and the 2024 fundraise was at 8p — the Pizzeria 105 vendor subscribed at 11.4p, suggesting equity is the most likely funding route if growth investment outpaces operating cash 2026-01 FY trading update, 2025-03 Strategic Acquisition.

Operating leverage

DP Poland has moderate operating leverage with clearly identifiable inflection points but a cost base that is still mostly variable today. Payroll and social charges of £21.1m in 2024 (39% of revenue) and cost of goods sold of £16.3m (30%) are largely variable at the corporate-store level, leaving unallocated central costs of ~£5–6m as the genuinely fixed element. The two structural inflection points are: (i) commissary consolidation completed Q1 2026 — capacity for up to 300 stores in a single facility vs current 141, meaning incremental volume from here drops at high contribution margin; (ii) franchise mix shift — franchise royalty/commissary supply revenue carries materially higher gross margin (commissary segment gross margin ~56% in H1 2025 vs corporate stores ~70% but with much lower opex absorption). On a 10–20% revenue beat from current ~£61m system sales, we estimate post-IFRS16 EBITDA could move from £6.3m to £8.5–10m — i.e. ~35–60% incremental EBITDA growth on 10–20% revenue beat. That is real but not the multi-multiple leverage the investor brief seeks. The Croatia stores' average weekly order count >1,200 (vs Poland ~830) is the aspirational benchmark management cites for what Polish stores could achieve 2025-06 Final Results 2024, 2026-04 Q1 trading update.

Value-trap signals

None identified that imply structural cheapness. The business is loss-making at the bottom line in 2024–H1 2025 but trending firmly the right way; debt has been repaid; growth is accelerating; no related-party concerns flagged beyond the Malaccan loan note (now repaid) and the standard Pizzeria 105 vendor lock-in. The 2014–2016 VAT dispute settled in DPP's favour. The principal "watch" item is repeated near-term EBITDA disappointments vs initial market expectations during 2022–H1 2025 — but this is now reversed.

Earnings vs. expectations

The track record across the period covered is mixed-to-improving rather than clean. Through 2022–H1 2024 the company several times explicitly reset expectations — H1 2024 EBITDA significantly higher than "in line" guidance, but the early-2025 trading update flagged a "slower than expected start" requiring management actions; the 2024 final results were delayed twice from May to late June 2025 (audit timing). From mid-2025 onwards the cadence improved markedly: Q3 2025 explicitly "in line with market expectations", FY2025 pre-IFRS16 EBITDA "in line", and Q1 2026 "in line with management expectations". Pattern: a string of misses/restatements/resets in 2022–early 2025 has given way to consistent in-line delivery from mid-2025 onwards — the trajectory is positive but the multi-year record argues against assuming serial beats.

Conviction

Conviction: 3 (moderate). Anchors: (i) clean and consistent KPI disclosure (system sales, LFL, order count by channel, by country, by quarter); (ii) audited 2024 statements unqualified and the methodology — applying a forward EBITDA multiple to a Domino's franchise — is standard and well-precedented; (iii) two converging valuation checks (EV/EBITDA and EV/system sales) land in similar territory. Limits: (i) the franchise transition makes the prospective margin/EBITDA profile inherently uncertain — getting from £6.3m to £8m+ EBITDA depends on Pizzeria 105 conversion economics that we have only pilot data on (~26% uplift in 4 pilot stores); (ii) very low free float liquidity relative to disclosed market cap and recent equity issuance at varied prices (8p, 11.4p) creates wider valuation bands than the multiples alone suggest.