Analysts cautious on Just Eat in short term due to market reaction

Analysts remained fairly confident in backing Just Eat's shares but while results were ahead of consensus expectations, management guidance for 2018 profits was significantly below consensus.

Guidance for 2018 was for £165-185m of underlying earnings before interest, tax, depreciation and amortisation, which implies a 19-27% downgrade to consensus, said RBC Capital Markets.

Management guided for revenues of £660-700m, the mid-point of which is 1% ahead of consensus, but underlying EBITDA was lower than the consensus at £227m as investment was increased due to intensifying competition in certain markets.

"Just Eat is attractively positioned, in our view, enjoying a leading position in all of its markets and should sustain high levels of growth. We see potential upside to revenue expectations, although believe investments in own delivery to weigh on share price performance near-term," RBC said. RBC kept its 'sector perform' rating, with a target price of 840p.

Canaccord Genuity said EBITDA guidance was "disappointing" in light of another year of significant investment.

"£50m is a really big hike in investment. This is the second time JE has done something like this. The first time (post 2017 interims), the market reacted negatively and then shrugged it off. We expect a similar reaction again."

Canaccord sees international territories becoming a material source of profits over the next few years, with established market revenue nearly doubled to £148m, but investment reducing EBITDA 12% to £12m. Developing markets also recorded rapid growth and a decline in EBITDA losses to £4m.

The broker said FY18 guidance "takes some deciphering", with EBITDA guidance comprises two ranges: underlying and another range to incorporate a new £50m of investment.

Analysts at Numis said as a consequence of the new guidance being 23% below consensus at the midpoint, they would put their recommendation under review, "until we get comfortable with the economics of the delivery model".

Berenberg said increased investment from the new CEO was expected, but the magnitude of the number for 2018 may come as a negative surprise, "unless Mr Plumb can do a good job in explaining why the £50m should be spent on delivery and why this will result in material incremental value creation over the medium term".

Analyst Robert Berg at Berenberg said his initial thoughts were that "we do not think the company should stand still and let competitors have a free ride at the delivery market and that £50m for an option on delivery in three large markets does not sound like a huge bet. We do, however, expect most the questions to be asked today, but most of the answers to come at the company’s capital markets day in June".