ii view: Sales growth slows at bid target Just Eat

A potential takeover still tops the menu at Just Eat. Investors now look towards December. 

Third-quarter trading update to 30 September 2019

• Revenue up 25% to £247.5 million
• Orders up 16% to 62 million

Guidance

• Full-year guidance maintained
• 2019 revenue in the range of £1 billion to £1.1 billion (excluding Brazil and Mexico)
• uEBITDA in the range of £185 million to £205 million (excluding Brazil and Mexico)

Interim chief executive Peter Duffy said:

"We are seeing strong growth in many of our markets, including Canada, Europe and pleasingly Australia, where we are starting to reap the benefits of our turnaround plan. Our UK marketplace business is a strong and clear leader. However, we are seeing a structural shift, with increasing demand on our platform from customers for broader cuisine choice and more meal occasions, led by quick service restaurant chains. The strong growth in our UK delivery business shows that we can successfully meet these needs.

The winning platform for food delivery will offer customers the broadest range, underlining the importance of our move to the hybrid business model and continuing investments in key markets.”

ii round-up:

Online takeaway company Just Eat (LSE:JE.) reported slowing revenue growth in this third-quarter trading update.

A 25% increase proved below the 30% improvement seen in the first half and down from the 41% revenue hike made in the third-quarter of 2018.  

The share price fell by more than 6% in early UK stock market trading. 

A 16% increase in total group orders to 62 million was similarly down from a 21% improvement over the first half and 27% rise in the third-quarter last year. 

Just Eat, which was founded in 2001, pointed to softer consumer spending and demand for broader cuisine choice for the slowing in its core UK market. Accounting for half of 2018 total sales, UK order growth of 8% contrasted with a rise of 9.3% in the first half and 16% in Q3 2018. 

More favourably, the company which recommended a takeover bid from continental rival Takeaway.com in August, underlined positive growth in markets such as Italy, Switzerland and Spain. 

Subject to satisfactory conditions, a general meeting regarding the proposed takeover is to be held in December.

Full-year revenue and adjusted profit guidance were left unchanged.  

ii view:

From a standing start in 2001, Just Eat has come a long way. The company and its rivals have revolutionised the takeaway business. A choice of food to be delivered to the door is now just a few clicks away on a mobile phone. 

For investors, despite a slowing in revenue growth, the proposed takeover by Takeaway.com still tops the menu. The two companies do not have any significant geographical overlap, making them a sensible fit. In the face of intensifying competition, size is likely to matter. That said, and with some analysts believing that the current offer from Takeaway.com undervalues Just Eat, we believe investors may want to take a “wait and see” approach. 

Positives: 

• A takeover deal would create one of the largest online food delivery companies in the world
• International expansion 

Negatives:

• Intensifying competition- Amazon.com Inc (NASDAQ:AMZN) has an interest in Deliveroo
• Latin American operations expected to report full year losses

The average rating of stock market analysts:

Strong hold