With first mover advantage and a heavy advertising spend, Just Eat dominates many markets like the UK and Netherlands and its shares have soared. Last year, Just Eat merged with Takeaway and the combined company is listed in London and Amsterdam, its corporate headquarters. And in the same year it bought Chicago-based GrubHub (GRUB), giving JET access to the lucrative US market.
Within this sector Just Eat Takeaway is the preferred stock of Morningstar analysts, who assign it a narrow economic moat. “Just Eat Takeaway is the leader in more than 90% of the markets it operates in and is well positioned, in our opinion, to benefit from the structural trend of increasing digitisation of food delivery orders,” says analyst Ioannis Pontikis.
He adds that the food delivery sector generates high profit margins for established players like Just Eat. And while food delivery has boomed during lockdown, there’s still a “significant and untapped” market of people yet to try it out. But one of the biggest questions about such lockdown “winners” is whether they can continue to prosper post-Covid when hungry customers can go to restaurants again. Pontikis expects online food ordering will not drop significnatly in major markets such as UK, Germany and the Netherlands. It is an “an early sign of a sustained change in consumer behaviour” he says.
Just Eat Shares Have Delivered
Just Eat shares are significantly undervalued, according to Morningstar analysts. The stock is rated 5 stars (our star rating ranges from 1 to 5 in order or of over- to undervalued) at £71.77, with a “fair value” of £132.
Retail investors disappointed with Deliveroo’s IPO may take heart from JET’s transformation over seven years as a listed company. At float in 2014, Just Eat was valued at £1.5 billion but it’s now worth over £10 billion. Pontikis thinks rivals like Deliveroo could start to capture some of its slice of the pie, and it will cost Just Eat money to defend its market share – either through investment in delivery and logistics or in advertising. Its purchase of GrubHub could become a negative for investors as it means that 40% of the company’s sales come from the US, where profit margins are lower due to greater competition.
Many food delivery businesses like Deliveroo and Just Eat went public before they were profitable. But Just Eat should break even in this financial year, according to Morningstar analysts, after making a £151 million loss in 2020 and a £115 million loss the year before. Investors are generally willing to overlook losses in high-growth companies, especially if the share prices keeps rising, as these firms incur large costs in the early stage of their lives. These can range from logistics and IT upgrades to buying smaller companies to scale up quickly. Nevertheless, Pontikis says that Just Eat is in good financial health, having raised money from equity and debt investors, with around €500 million of cash on the balance sheet.