Just Eat share price: what to expect from 2018 results
Just Eat is aiming to convince investors it has what it takes to compete with Uber Eats and Deliveroo. We explain what to watch out for ahead of the annual results.
When is Just Eat’s earnings date?
Just Eat will report 2018 annual results on Wednesday 6 March 2019 at 7:00 GMT.
Just Eat results preview: What does the City expect?
The pressure is on when Just Eat releases its full year results. The company is searching for a new, experienced chief executive (CEO) to take over the reins at a time when competition with Uber and Deliveroo is intensifying, so much so that one activist investor is urging Just Eat to merge with a rival to gain the leadership and scale it needs to compete.
Read about Just Eat CEO stepping down after a tough 2018
Just Eat floated in 2014 as investors bought in to its rapidly growing and unrivalled marketplace platform that connects customers with takeaway restaurants that offered their own delivery services. As it focused on providing the digital infrastructure and marketing capabilities to bring the highly fragmented takeaway industry together, Just Eat was able to expand quickly across the country. For years, this had given Just Eat the edge over Uber and Deliveroo, whose labour-intensive delivery services offered to restaurants limited the pair to densely populated cities suitable for their bike or moped-riding couriers. This ultimately meant Just Eat was able to boast higher margins and further reach than its competitors.
But the buoyant support for Just Eat has waned as shares started losing considerable ground in the middle of last year. The fact that revenue and earnings are both forecast to grow in 2018 has been increasingly overshadowed by developments at its rivals and fears that Just Eat could be left behind. Both Uber and Deliveroo have started targeting Just Eat’s primary customers by allowing restaurants with their own delivery drivers to use their services, while Just Eat is investing in its own delivery services to attract its rival’s customer base.
As the race to become a one-stop shop for customers and restaurants heats up, exacerbated by the possibility that Uber and Deliveroo could list in the not-so-distant future, investors are concerned that even if Just Eat can stave off the threat of its competitors that the days of rapid expansion and high margins is coming to an end.
Just Eat 2018 annual results expectations
|Revenue (£, m)||546.3||780|
|Underlying EBITDA (£, m)||163.5||172-174|
|Revenue (£, m)||546.3||778.2|
|Adjusted basic (EPS) in pence||16.8||16.9|
The search for a new CEO
Just Eat announced last month that, after just a year in charge, CEO Peter Plumb had stepped down with immediate effect, with chief customer officer Peter Duffy taking over while it searches for a permanent replacement. The sudden resignation follows pressure from activist investor, Cat Rock Capital, which thinks the company needs to be more ambitious and led by someone with relevant industry experience – something it believes the current board lacks. In an open letter to the board, the investor said 'Just Eat clearly needs a world-class management team with online food delivery experience' and said the firm had failed to find a suitable CEO, claiming several candidates it has put forward in the past had been disregarded by the board.
Plumb’s resignation paved the way for Cat Rock to make a bold proposal in the letter, stating: 'any new CEO will face the daunting task of rebuilding Just Eat’s entire management team while simultaneously attempting to execute on the company’s marketplace and delivery initiatives… It is therefore increasingly clear that a merger would be the best way for Just Eat to secure the management talent and delivery expertise it needs to compete'.
The industry has started to consolidate. Takeaway.com bought Delivery Hero for $1 billion late last year, following reports that Uber and Deliveroo had failed to agree on valuations during merger talks. Rumours of a Just Eat-Deliveroo tie-up also began circulating last year and the London-listed firm has already snapped up a string of businesses to expand into new countries such as Canada. However, it is important to note that Cat Rock, which owns around a 2% stake in Just Eat, also holds a near 5% stake in Takeaway.com, which some argue gives the investor an alternative motive to push for a merger. Another shareholder, Sarasin & Partners, has reportedly made a point of stating Just Eat is its only investment in the sector and that it believes the possible synergies of any merger would be limited.
Just Eat will be keen to appoint a new CEO swiftly, but will prioritise securing the right candidate with enough experience to allay the concerns of shareholders and prevent the push for more drastic change.
Change to guidance for 2019 and beyond
Just Eat has already outlined its expectations for 2019, so investors need to keep an eye out for any changes to the outlook. The company has said orders and revenue will continue to grow and that margins from its core marketplace business - at the earnings before interest, tax, depreciation and amortization (EBITDA) level - will improve year on year. Just Eat’s revenue range for 2019 is currently £1.00 billion to £1.10 billion, which would represent annual growth of 28%-41%.
Importantly, Just Eat is restructuring how it reports results from 2019 onwards. Its current joint venture in Brazil and Mexico is operated by its partner but the results from the unit are still folded into Just Eat’s wider results. This will no longer be the case in 2019, when the venture’s results will be stripped out. With this in mind, Just Eat has said it expects underlying EBITDA to be between £185 million to £205 million, but that would exclude an anticipated loss of £80 million to £100 million from its Latin American operations.
Delivery on its delivery strategy
The decision to start offering delivery services for restaurants to tap into is a significant move for Just Eat as the firm will be encroaching on Uber and Deliveroo’s territory. Revenue from delivery services leapt to £81.90 million in the first half (H1) of 2018 compared to £24.20 million the year before, accounting for 23% of total revenue compared to just 10% in 2017.
Just Eat has already launched these services in UK cities like Leeds, Liverpool and Manchester but has said the stellar growth has been driven by its Canadian operations, which operates under SkipTheDishes. Just Eat merged its own Canadian unit into SkipTheDishes after buying it in late 2016 and decided to keep the brand as it had a stronger presence in the country. Just Eat is also expanding delivery services in Australia (under the Menulog brand) where it was moving into a new area every ten days by the end of H1. It admitted there was 'more to do to emulate the full SkipTheDishes experience in Australia' when it released its interim results but said it was already serving a population of two million people across seven different zones.
The investment in its delivery services is expected to weigh on margins in the second half of 2018, which is likely to push down H1 underlying EBITDA margin of 49% (which in turn was down from 52% the year before). Although Just Eat has pledged its core marketplace business will grow margins going forward, the investment in delivery services and the growing proportion of income it is deriving from it means its overall margin is likely to come under pressure.
International vs UK performance
Just Eat’s non-UK business generated 49% of its total revenue in the H1 of 2018 and that was up from 43% the year before, demonstrating the importance of its international operations. Strong growth in Italy, Spain and Mexico drove a 36% rise in revenue from its international division H1 and continued to go 'strong' in the third quarter (Q3).
Just Eat has also said it expects SkipTheDishes to report its first annual profit in 2019, suggesting it will report a major improvement in 2018.
Investors will also want to see Just Eat maintain momentum in the UK, particularly after the firm said it took over one million orders in a single weekend during the Q3, when quarterly orders rose 16% to 30.3 million.
Rolling out tech
It is often forgotten that Just Eat is primarily a tech company. It has been rolling out its restaurant order device, the ‘OrderPad’, to its restaurant clients to act as a central hub for their operations and said it would deliver them to 'all restaurants' in March last year. By the end of June 2018 it had installed 34,300 OrderPads, up from 15,400 a year earlier, with 18,800 of them in the UK.
Just Eat’s app has also become the main avenue to receive orders, accounting for 54% of all orders in H1 compared to 46% the year before. The firm has pledged to improve its app offering because customers tend to be more loyal, so any improvement on this front will be welcome. That should also translate to higher order frequency, which averaged 8.1 orders per customer per year in H1 compared to 8.0 a year earlier.
Just Eat share price: technical analysis
From a technical standpoint, the decline through the April 2018 low of £6.6 provided the completion of a double top formation, bringing about substantial losses throughout the last months of last year.
However, with the price having recovered much of that sell-off, we now see the stock trading below a crucial zone of resistance. With trendline support and the 61.8% Fibonacci retracement up ahead, the wider bearish trend of lower highs and lower lows is brought back into play.
There is certainly an argument to say that this 2018 sell-off is simply a case of pulling back within the wider uptrend, with the company now heading back in favour of the underlying trend having hit trendline support. However, with this confluence of resistance up ahead, it makes sense to await the response to this area to dictate the outlook for the coming weeks.
How to trade Just Eat’s annual results
A Thomson Reuters poll of 17 analysts shows there is a long-term 'buy' rating (as of 27 February), with only a couple believing the company is adequately valued and just one broker recommending 'sell'.
The overall stance on Just Eat has become more bullish over the last three months, with numerous brokers having upgraded the company from 'hold'.
Just Eat shares: broker recommendations
|Recommendation||Number of brokers|
Just Eat earnings: can it deliver?
Just Eat’s core marketplace business has continued to deliver strong growth but there are concerns that the company’s investment in delivery services will weigh on margins. That, twinned with the move by both Deliveroo and Uber to target customers with their own delivery services, means the three are encroaching on one another’s space, raising questions about who could be left behind.
The lack of a chief executive is the primary problem that needs to be resolved but sourcing a new leader with the experience and skill demanded by one activist investor calling for Just Eat to merge with a rival will not be easy. It will be a big challenge for whoever takes charge, so securing the support of shareholders would help shorten the to-do list of the new CEO.
The long-term broker recommendation on Just Eat remains at 'buy' following a tough eight months for its share price, with only a handful believing the firm is adequate or overvalued.
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