ii view: Just Eat loses money but no more than City forecasts

Shares for this international food delivery mammoth have more than halved this year. Buy, sell, or hold? 

First-half results to 30 June

• Currency adjusted revenue up 1% to €2.77 billion
• Adjusted loss (EBITDA) improved 29% to €134 million
• Cash and cash equivalents of €882 million
• Profit expectations going forward unchanged

Chief executive Jitse Groen said:

“After a period of exceptional growth, Just Eat Takeaway.com is now two times larger than it was pre-pandemic. Whilst this growth required significant investment, we have continued to focus on executing our strategy to build and operate highly profitable food delivery businesses.”

ii round-up:

Online food ordering company Just Eat Takeaway.com NV (LSE:JET) today reported first half results broadly in line with City forecasts. 

First-half adjusted losses reduced by 29% to €134 million despite a 7% fall in orders as last year’s boom due to pandemic restrictions remains a tough comparison. That compared to analyst expectations nearer to a loss of €138 million. 

Just Eat shares rose by more than 5% in UK trading having come into these latest results down around 60% year-to-date, similar to other delivery companies previously buoyed by the pandemic like Deliveroo (LSE:ROO) and Ocado (LSE:OCDO). Even Amazon (NASDAQ:AMZN) shares have fallen by almost a fifth during 2022, underperforming a 16% retreat for the FTSE All World index. 

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Just Eats’ North America and UK and Irish operations proved profitable on an adjusted profit basis (EBITDA) during the second quarter, with management retaining its expectation that it will turn a profit on an adjusted basis in 2023. 

Cash and cash equivalents of €882 million are seen by management as sufficient to carry the company through to profitability, while it continues to work on various options to further strengthen its balance sheet, including the possible sale of assets and refinancing alternatives.

Broker UBS reiterated its buy stance on the shares following these latest results, flagging an estimated long term fair value share price of £24.  

ii view:

In early in 2020, Just Eat and Dutch company Takeaway.com combined. In June 2020, months into the global pandemic, it launched a deal to buy US business Grubhub. The now international Just Eat business generates most of its revenues from commissions charged to restaurants on the value of orders placed through its platforms. It mainly collaborates with delivery restaurants, but also provides its delivery services to restaurants that do not deliver themselves. 

For investors, Just Eats’ timing in buying Grubhub, and against the backdrop of the Covid crisis, was arguably ill-judged given a €3 billion impairment taken within these latest results and including adjustments for sector valuation falls. Intense competition continues to affect fees, while increased costs and ongoing investment drag on profitability. There’s no dividend and, like other delivery companies, bumper sales seen during the Covid lockdowns are difficult to replicate now that we’re coping better with the pandemic.

On the upside, a recent business partnership between Grubhub and Amazon in the US was received well by investors. Just Eats’ geographical footprint is also significant, including in the UK, Germany, and France, while costs generally remain a strong focus. Previously exiting areas of the business which have proved harder to make profitable like Norway and Portugal is also a sensible move. On balance, and with Just Eat having established itself as a major industry player, more speculative investors with a longer term view may stick with the shares as a recovery play. 

Positives: 

• Diverse geographical markets
• Investing for growth

Negatives:

• Intense competition
• Loss making

The average rating of stock market analysts:

Buy