Broker tips: Just Eat, Mitie, Allied Minds

Just Eat was under pressure as Canaccord Genuity downgraded the stock to 'hold' from 'buy' and slashed the price target to 700p from 850p as it published new forecasts following last week's prelims and new guidance.

The brokerage cut its earnings per share forecast for 2018 by 26% to 17.1p and its estimate for 2019 by 27% to 20.4p.

"Just Eat is to make a £50m push into the adjacent Quick Service Restaurant market with the addition of delivery capability. Unsurprisingly, its share price has taken a rain check. We think Just Eat has over-delivered, and there is a defensive element in this move as its customers potentially migrate from independents to QSR alternatives and as delivery experts potentially migrate from QSR to cherry-pick the best of the independent sector."

Canaccord pointed out that Just Eat will have to take on "established, well-funded and innovative" platforms such as Deliveroo, Ubereats and Amazon Restaurants that, unlike Just Eat, take both the orders and deliver the food.

"Domino's reminded us last week that it has been delivering in the UK for +30 years. QSR operators are experimenting too and they are pushing delivery companies into competitive pitches to test the tolerances. We see higher complexity, higher competition, higher uncertainty and lower EBITDA margins as Just Eat makes its push."

Analysts at Barclays highlighted Mitie's current strategy as being a "good fit" for shifts in the facilities management market and upgraded the shares to 'overweight' from 'underweight'.

Barclays, which upped its target price to 180p from 174p, pointed to recent comments made by Mitie chief executive Phil Bentley as positive momentum in the company that now appears to realise that there are investments to be made in getting the basics done right before the group can move up the value chain with its customers.

"If we want to have an engaged conversation with our clients about the Connected Workspace, we better make sure the toilets aren’t blocked," Bentley was quoted as saying.

Analyst Jane Sparrow of Barclays noted that these investments would make for a non-linear recovery, and when coupled with UK labour cost pressures, could mean that the final net cost savings delivered by Mitie would possibly be well below current management targets and that leverage may not quite reduce as quickly as projected.

Sparrow highlighted an increased use of technology in facilities management as being a key driver in the next phase of the market, firstly as a way of utilising existing resources more efficiently to offset labour cost pressures, but secondly, that technology would end up driving market share into the arms of those companies who can offer solutions based around more effective workspace utilisation and employee well-being to "deliver savings to the customer from a total cost of ownership perspective".

"Put simply, cost savings can no longer come from cleaning the toilets slightly less often, or adding more blue-collar services to a contract and trying to achieve economies of scale. The approach has to become more innovative. We believe Mitie’s strategy recognises this," the Friday morning research note read.

Analysts at Credit Suisse slashed their target on shares of Allied Minds, telling clients they were still waiting for the commercial proof points from the company and pointed out its ongoing rate of 'cash burn'.

In a research note sent to clients, the Swiss broker took its target for the shares from 175p to 110p, while retaining a 'neutral' recommendation for the stock.

The reasons for their decision on the former were lower valuations across the firm's peer group, a decline in its Group Subsidiary Ownership Adjusted Value, less cash held at parent level and stronger cable.

"Still waiting for commercial proof points [...] As highlighted at CMD, management is focused on getting the top 6 subsidiaries closer to commercialization or milestones to allow it to exit at a premium valuation.

"In that context, we continue to wait to hear about first commercial contract wins for Federated Wireless (contingent upon FCC approval) and HawkEye at some point during 2018," they said.

As for the company's cash burn, going forward Credit Suisse expected it to decline from the between $90m to $100m per year seen over the past two years to about $80m per year.

At present, the early state technology start-up investors was holding $169m of net cash, with $84m of that at the parent level and another $85m at the subsidiary level.