It’s been a mad, mad week for investors in takeaway food delivery company Just Eat (LSE: JE) after news broke of its proposed merger with Takeaway.com of the Netherlands on Saturday. That rather overshadows today’s half-yearly results, although they’re a positive set of numbers, with orders and revenues both rising sharply.
However, profits are down as the £5.1bn FTSE 100 business has been investing heavily in future growth.
Eat that!
Just Eat is an investor favourite and understandably so, as its share price has soared 265% over the last five years. Many have become increasingly nervous, amid growing competition from UberEats and Amazon-backed Deliveroo. But news of the merger with Takeaway instantly lifted the share price by 25%, and this morning it put on another 2.5% as investors welcomed today’s update for the six months to 30 June.
Financial highlights included a 21% rise in orders to 123.8m, with Just Eat showing there’s still new business to be won by signing up 2m net new customers in the first half. Revenue rose 30% to £464.5m as customers ordered more. But the “leading global hybrid marketplace for online food delivery,” as Just Eat styles itself, is currently in the accelerated rollout of delivery stage, and this is eating into profits.
Harder to swallow
Profit before tax fell a whopping 98% to £800,000, down from £48.1m in the first half of last year, “reflecting planned investments in delivery and iFood.” Adjusted earnings per share (EPS) also fell 36% to 5.7p. Net cash generated by operations was down 15% to £65.9m.
Investors are focusing on the positives, and there are many, including more than 27m customers ordering an average of 8.7 times a year, up from 8.1 times. UK order growth recovered to 11.2% and its service now covers 50% of the addressable population in both UK and Australia, with 5,200 and 5,700 restaurants, respectively.
Canada is profitable with continuing positive order momentum, European markets are enjoying good growth, while iFood is showing triple digit year-on-year order growth. The group is expanding in Brazil and Mexico too.
It has also struck up new partnerships with Greggs and Asda in the UK, Domino’s in France and Burger King in Denmark and Ireland, while acquiring Practi in April and City Pantry in July. No wonder the Just Eat share price is up.
Expensive order
The board reconfirmed its guidance for full-year 2019 revenue in the range of £1bn-£1.1bn, excluding Brazil and Mexico, and interim CEO Peter Duffy said it’s now “the preferred food delivery app for our customers, with a broader choice of restaurants, a better user experience and a more personalised and impactful approach.”
Should you buy it? Last month, my colleague Roland Head said he would rather sell, as the Just Eat share price could struggle to live up to inflated expectations.
I have to agree, with the stock now trading at a barely digestible 77.1 times forecast earnings. It may justify that valuation – EPS are forecast to drop 48% this year, but City analysts are pencilling in a 95% rise in 2020.
Just Eat could well be on the road to global domination. The problem is at today’s price, even a minor setback could hammer the shares.
