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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 at the moment final 12 months, to present ranges.
The bull case
The actual 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 earth is a plus level. In addition to Poland, the enterprise is venturing into Croatia too. This new avenue may enhance earnings in addition to doubtlessly returns too.
Subsequent, I’m buoyed by DP’s enterprise mannequin, particularly its two primary 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 effectively. Since opening its first retailer in Warsaw in 2011, it now possesses 116 shops in Poland, and 4 in Croatia. The enterprise has bold plans to have 500 shops by 2030.
It needs to be famous that the enterprise is loss-making. This can be a purple flag, however many small caps are loss-making for a lot of years to start out with. The nice signal for me with DP is that the losses appear to be shrinking every reporting interval.
One other optimistic 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 might proceed on this method, I reckon it could possibly be within the black very quickly. Nonetheless, I do perceive the previous shouldn’t be 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 improve much more spectacular, when you ask me. Nonetheless, the longer-term fear is that continued inflation may imply larger prices, tighter margins, and the potential for a revenue being additional away.
Subsequent, the enterprise does have some debt to cope with on its stability sheet. This isn’t normally a fear as most companies have some type of debt. Nonetheless, DP lately raised funds by means of shareholders to pay down debt and in addition fund progress. As a small cap, it doesn’t have the monetary may to stave off monetary points. Increased debt ranges and a scarcity of money circulate sooner or later could possibly be deadly.
General, at 10p per share, and an honest progress report to this point, I’d be prepared 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 progress.
