A comprehensive strategic valuation presentation of Domino's verse Papa John's Pizza companies. Methods include DCF, Relative valuation, regression analysis.

1. Domino’s and Papa John’s
Strategic Valuation Analysis
VS

2. Agenda
• Restaurant Industry Overview
• Domino’s Company Overview
• Papa John’s Company Overview
• Domino’s Analysis
• Papa John’s Analysis
• Conclusion

3. Global Restaurant Statistics
• $1.6 trillion in revenue in 2010
– Cafes & Restaurants account for 36% ($571 b)
• Marked growth is expected to slow to 3% yearly by 2015
– $1.8 trillion by the close of 2015
• Trends & Challenges
– Unstable food and energy prices
– Fragile housing sector
– Depleted consumer confidence
• Health-conscience Consumers
(http://www.reportlinker.com/ci02054/Restaurant-and-Food-Services.html)

4. Restaurant Industry Overview
• Growth
• Challenges
• Trends

5. Commodity Price Index

6. Informal Dining Segments

7. QSR Segments
Source: Restaurant State of the Industry
Report Part 1: Food and Beverage © 2011
NetWorld Alliance LLC

8. Pizza Competitors
Source: PMQ Pizza
Magazine September 2011

9. Pizzeria Rankings
Source: PMQ Pizza Magazine September 2011

10. Domino’s Pizza Overview
• History
• Ownership
• Strategies
– Technology and Innovation
– Supply Chain
– Growth
– Healthy Pizza in Schools
• Domestic v. International
– Marketing
• “Oh Yes We Did!”

11. Domino’s Pizza Analysis
12 Months Ended Common Size
(In $Millions) FY 2009 FY 2010 FY 2011 FY 2009 FY 2010 FY 2011
TOTAL NET REVENUES 1,404,057 1,570,894 1,652,193 100% 100% 100%
TOTAL COST OF SALES 992,981 1,132,305 1,181,677 70.7% 72.1% 71.5%
OPERATING MARGIN 386,976 438,589 470,516 27.6% 27.9% 39.8%
DEPRECIATION 24,100 24,100 24,000 1.7% 1.5% 2.0%
GENERAL AND ADMINISTRATIVE 197,467 210,887 211,371 14.1% 13.4% 17.9%
INCOME FROM OPERATIONS 189,509 227,702 259,145 13.5% 14.5% 21.9%
INTEREST INCOME 683 244 296 0.05% 0.02% 0.0%
INTEREST EXPENSE (110,945) (96,810) (91,635) 7.6% 6.7% 6.3%
INC. B/F PROV. FOR INCOME TAXES 135,522 138,945 167,806 9.7% 8.8% 10.2%
PROVISION FOR INCOME TAXES 55,778 51,028 62,445 41.2% 36.7% 37.2%
NET INCOME 79,744 87,917 105,361 5.7% 5.6% 6.4%

12. Domino’s Pizza Analysis
2012 2013 2014 2015 2016
Operating Profit 296,975 302,769 306,709 309,370 311,160
Taxes 114,038 116,263 117,776 118,798 119,486
NOPAT 182,937 186,506 188,933 190,572 191,675
Plus: Depreciation 37,920 38,533 38,949 39,231 39,420
Less: Capex (25,566) (26,845) (28,187) (29,596) (31,076)
Less: Change in NWC 521 (749) (509) (344) (231)
Firm FCF: 195,811 197,445 199,185 199,862 199,787
Assumptions
Revenue Growth: 5-year Forecast Period
CS: 72.0%
G&A: 12.8%
Taxes: 38.4%
Int. expense: 7.0%
Op. NWC 2.20%
Capex: 5%
DA: 1.80%

13. Domino’s Pizza Analysis
Terminal Value: 4,785,614
PV FCF 183,380 173,170 163,606 153,740 143,925
PV(Terminal Value): 3,447,515
Total PV(FCFF + TV) 4,265,335
Less Current Debt 1,450,369
Estimated Equity Value 2,814,966 2,180,000 (as of 4/29/12)
Value per share 48.73 37.14 (as of 4/29/12)
Appreciation in price 31.2%
Discount Rate (WACC) 6.78%
Long-term growth rate 2.50%

14. Domino’s Analysis
Comparable Companies In $ Millions (except ratios)
Forward
PE PE Price Revenue Market Shares Net
As of April 27, 4:00PM Ratio Ratio PSR /Share / Share Value O/S Income Sales Weight
QSR Pizza Segment
Pizza Hut (YUM) 23.19 19.24 2.59 73.32 28.13 33,730 460.00 1,510 12,940 20%
Papa John's (PZZA) 18.26 14.55 0.80 40.17 50.33 974 24.24 56 1,220 50%
QSR Segment
McDonald's (MCD) 18.20 15.49 3.56 97.43 26.90 99,240 1,020.00 5,560 27,440 10%
Starbucks (SBUX) 34.39 24.75 3.75 57.43 16.18 43,270 753.40 1,280 12,190 10%
Tim Hortons (THI) 24.28 18.78 3.07 57.85 18.39 9,090 157.14 388 2,890 10%
21.46 17.03 1.96 56.02 36.94 22,393 297.17 1,053 7,450 100%
Value
Value PPS Diff.
Forward PE Valuation 1,793.75 31.05 -17.7%
PE Valuation 2,260.50 39.13 3.7%
PSR Valuation 3,227.40 55.87 48.0%
Domino's Value 2,180.00 37.74

15. Papa John’s Pizza Overview
• History
• Growth
• Market Share – 6%
• Strategies
– Growth Through Quality
– Better Ingredients. Better Pizza
– International Expansion
– Supply Chain – QC Centers
– An App for ordering

16. Papa John’s Pizza Overview
• Ownership
– Insiders/Owners: 24%
– Institutions
– Mutual Funds http://financehttp://finance.yahoo.com/q/pr?s=
PZZA+Profile
• Governance .f
– Founder, CEO and Chairman
– 3 Charter Committees
• Stock History
– June 1993 IPO (PZZA) - $4
– Today: creeping over $40

17. Papa John’s Pizza Analysis
Pro-Forma Income Statement 2012 - 2015
2011 Common Size 2012 2013 2014 2015
• Assumptions Total revenues
Cost of sales
1,217,882
126,887
100.00% 1,267,693
10.04% 127,229
1,313,204 1,353,782 1,388,844
131,797 135,869 139,388
Salaries and benefits
– Revenue growth
142,093 12.21% 154,840 160,398 165,355 169,637
Advertising and related costs 49,035 4.11% 52,165 54,038 55,708 57,151
Occupancy costs 32,278 2.77% 35,167 36,430 37,556 38,528
• 4.09% to 2.59% Other domestic Company-owned restaurant
Total operating expenses
expenses
75,558
425,851
6.34%
35.48%
80,413
449,814
83,300
465,963
85,874
480,361
88,098
492,802
– Tax Rate: 32%
Cost of sales 426,955 34.16% 433,103 448,651 462,515 474,494
Salaries and benefits 35,141 2.98% 37,745 39,100 40,308 41,352
Other operating expenses 53,188 4.24% 53,761 55,691 57,412 58,899
– Operating Leases Total domestic commissary and other expenses
International operating expenses
515,284
35,674
41.38%
2.70%
524,609
34,228
543,442
35,457
560,235
36,553
574,745
37,499
General and administrative expenses 111,608 9.58% 121,388 125,746 129,632 132,989
• Capitalize Other general expenses
Depreciation and amortization
9,767
32,681
0.91%
2.79%
11,504
35,343
11,917
36,611
12,286
37,743
12,604
38,720
Total costs and expenses 1,130,865 92.35% 1,170,735 1,212,764 1,250,238 1,282,620
Operating income 87,017 7.65% 96,959 100,440 103,543 106,225
Investment income 755 0.07% 836 866 893 916
Interest expense -4,668 -0.31% (7,082) (6,512) (5,928) (5,592)
Income before income taxes 86,275 7.41% 93,885 97,255 100,260 102,857
Income tax expense 26,888 30,043 31,122 32,083 32,914
Net income, including noncontrolling interests 59,387 63,842 66,134 68,177 69,943
Less: income attributable to noncontrolling interests -3,732 -0.32% (4,002) (4,146) (4,274) (4,384)
Net income, net of noncontrolling interests $55,655 4.73% 60,008 62,162 64,083 65,743

18. Papa John’s Pizza Analysis
• Discount Rate (WACC): 6.05% (calculated)
– Terminal Growth Rate: 2.5%
– Risk Free Rate: 2.5%
– Equity Risk Premium: 5%
2012 2013 2014 2015 Terminal value
Net income, net of noncontrolling interests 49,100 51,731 54,129 56,086
Plus: Depriciation and Amortization $47,965 $49,233 $50,365 $51,342
Operating Net Working Capital $23,716 $23,875 $24,035 $24,196
Less: Increase in Net Working Capital 10,059 159 160 161
Less: Capex 31,358 29,321 27,415 25,634
Projected FCFF $55,647.56 $71,485 $76,919 $81,634 $2,359,623
Present value of FCFF 52,475 63,566 64,498 64,549 1,865,794
Total present value of FCFF 2,110,882

19. Papa John’s Pizza Analysis
• Discount Rate: 9.35% (implied)
– Terminal Growth Rate: 2.5%
– Risk Free Rate: 2.5%
– Equity Risk Premium: 5%
2012 2013 2014 2015 Terminal value
Net income, net of noncontrolling interests 49,100 51,731 54,129 56,086
Plus: Depriciation and Amortization $47,965 $49,233 $50,365 $51,342
Operating Net working Capital $23,716 $23,875 $24,035 $24,196
Less: Increase in Net operating capital 10,059 159 160 161
Less: Capex 31,358 29,321 27,415 25,634
Projected FCFF $55,647.56 $71,485 $76,919 $81,634 $1,219,749
Present value of FCFF 50,885 59,772 58,811 57,074 852,779
Total present value of FCFF 1,079,320

20. Papa John’s Analysis, Cont.
• Relative Valuation
In Millions (except ratios)
Forward PE Price Revenue / Market Shares Net
Comparable Companies PE Ratio Ratio PSR /Share Share Value O/S Income Sales Weight
QSR Pizza Segment
Pizza Hut (Yum! Brands) 23.19 19.24 2.59 73.32 28.130435 33730 460 1510 12940 20%
Papa John's 18.26 14.55 0.8 40.17 50.330033 973.8 24.24 55.65 1220
Domino's 21.72 16.65 1.28 37.14 28.561537 2150 57.77 105.36 1650 50%
QSR Segment
McDonald's 18.2 15.49 3.56 97.43 26.901961 99240 1020 5560 27440 10%
Starbucks 34.39 24.75 3.75 57.43 16.179984 43270 753.4 1280 12190 10%
Tim Hortons 24.28 18.78 3.07 57.85 18.391243 9090 157.14 388.26 2890 10%
23.185 18.075 2.196 54.505 26.054174 22981 313.939 1077.506 7665 100%
Value
Value PPS Difference
Forward PE Valuation $1,005.87 $41.50 9.50%
PE Valuation $1,290.25 $53.23 40.45%
PSR Valuation $2,679.12 $110.52 191.64%
Papa John's Valuation $918,640 $37.90

21. Conclusion
Value Value
Domino's Valuation Summary Value PPS Diff. Papa John's Valuation Summary Value PPS Diff.
DCF 2,875 49.77 31.89% DCF 1,950 80.46 112.30%
Forward PE 1,794 31.05 -17.7% Forward PE 1,006 41.50 9.50%
PE 2,260 39.13 3.7% PE 1,290 53.23 40.45%
PSR 3,227 55.87 48.0% PSR 2,679 110.52 191.64%
Domino's Today 2,180 37.74 Papa John'sToday 919 37.90

22. Discussion

23. Pizza Facts
• $30 billion industry
• 350 slices per second consumed in US
• 61,269 pizza parlors in US
• 3-11 year old favorite food for lunch or dinner
• Average American eats 46 slices;
– 23 pounds of pizza annually
– 3 billion pizzas per year overall
• Americans consume 251,770,000 pounds of pepperonis per year
• Most popular “ethnic” food in America
– Source: http://library.thinkquest.org/J0112790/facts.html