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Analyst Research Report Snapshot


Charles Stanley: Domino Printing Sciences (Hold)




Charles Stanley Securities


29 Oct 2013





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Two years hard going We expect FY13 normalised PBT to be broadly flat on the prior year. Consensus earnings estimates have been falling since March 2012 as the Group has faced difficult market conditions, particularly in Europe and in certain markets within Asia and the Americas. Top line growth in FY13 mainly reflects a full year effect of the acquisitions of Graphtec and Postjet, building sales of Domino's emerging digital label press and a favourable currency movement that looks set to reverse in FY14. Investment in both R&D and sales and marketing has increased and these have been important factors in maintaining the Group's competitive position, but they have weighed on profitability. We now expect H2 FY13 to show a 1.6 percentage point reduction in gross margin to 48.9% compared to the peak leavel of 50.5% in H2 FY11 and, similarly, a 3.1 percentage point fall in the Group's normalised operating margin to 16.8%. Investors continue to like Domino for its experienced management team, operational gearing and the obvious resilience of its high margin fluids, and consumables revenue. At 693p however, Domino trades at a prospective FY14 PER of 18.3x. This is hard to justify and we believe that the enthusiasm for the shares at this level to be somewhat misplaced. We have a 625p price target and reiterate our hold recommendation.

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