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Just Eat share price falls despite profit boost staving off activist pressure for merger

The food delivery service recorded a sharp rise in revenues and a boost in profits that helped it fight back against pressure to merge with one its rivals from activist investor Cat Rock Capital.

Just Eat recorded a strong rise in revenues and a boost in profits in its full-year results, helping it to stave off pressure from activist investor Cat Rock Capital which has called for the company to merge with a rival to improve earnings growth.

Despite posting a strong set of results, the food delivery service saw its share price take a tumble on Wednesday morning after investors were told that the company’s 2019 earnings will be hurt by losses in Mexico and Brazil.

“Just Eat’s continued strong growth and strategic investments saw more than four million new customers join us in 2018,’ Just Eat Interim CEO Peter Duffy said.

‘We have a clear plan for the year ahead as our highly experienced team works hard to accelerate the execution of our strategy and we remain focused on long-term returns for shareholders.’

Just Eat results: key figures

The food delivery service saw its revenues rise 43% to £779.5 million, while cashflow slide 6% to £157.3 million following the company’s acquisition of rival Hungry House with the deal valued at more than £200 million.

The company has 26 million active customers that helped drive strong order growth of 28% to 221 million in 2018, with underlying EBITDA up by 6% to £173.9 million.

Just Eat also saw strong growth from its Canadian business SkipTheDishes with the company reaching full national coverage and managing to breakeven in its fourth quarter following a major investment drive.

The company also saw strong UK growth with orders up 17%, which combined with its successful integration of Hungry House helped Just Eat become the leading food delivery service provider in the country.

‘Our leading hybrid marketplace gives Just Eat a real competitive advantage and we are pleased with the speed at which this is now being rolled out,’ Just Eat Chairman Mike Evans said.

‘The Board’s search to identify Just Eat’s next permanent CEO is underway and we will provide a further update when a decision has been taken,’ he added.

Just Eat share price tumbles on Latin American losses

The food delivery service saw its share price tumble more than 2% on Wednesday morning to £7.44 a share, with investors reacting to the company’s challenging outlook for 2019.

Despite the company offering a 2019 guidance of £1 billion to £1.1 billion in revenues this year, the management team also said that almost half of its underlying earnings of between £185 million and £205 million will be wiped about by losses in its iFood unit that covers Mexico and Brazil.

The news shows just how hard it is to consistently be profitable in this sector and is a fact being used by activist shareholder Cat Rock Capital to garner support from other stockholders to apply pressure on Just Eat’s management to merge with a rival to create the scale needed in a winner-takes-all industry.

However, the company’s management seems to favour organic investment over inorganic growth, with Just Eat patterning with leading quick service restaurants including McDonald's, KFC, Tim Hortons, Hungry Jack’s and Subway. It also has invested in its customer, courier and partner experience by improving its technology, helping order frequency increase by 5%.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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