Berenberg starts Just Eat at 'buy'

Berenberg initiated coverage of Just Eat at ‘buy’ with a 530p price target, pointing to a compelling valuation.

“Given its clear market-leading positions, we believe Just Eat has many years of strong top-line growth, margin development and free cash flow generation to come.”

The bank said the valuation was compelling as the perception that restaurant delivery businesses will significantly affect this growth story is flawed.

Berenberg said Just Eat’s offline to online migration still has a long way to go.

The bank sees numerous benefits for both takeaway restaurants and consumers from online and app ordering, which make the telephone an inferior competitor.

It pointed out that Just Eat’s management estimates that in 2015, the company’s average market penetration across its 13 territories was only 19.6%, up from 12.4% in 2014.

“With Just Eat being the clear leader in all but one of its markets, this implies the migration to digital still offers substantial opportunities for the company in the future. In fact, even in the UK, Just Eat’s largest business, 60% of takeaway orders are still made on the telephone.”

Berenberg pointed out that Just Eat is the clear leader in 12 out of its 13 markets. As seen with similar companies such as Rightmove and Auto Trader, once a clear winner emerges “there is a virtuous circle whereby both the vendor and the consumer benefit from the growth of the aggregator, and dependency increases”.

This leads to material revenue growth on what is a relatively fixed cost base, the bank said.

At 1045 BST, Just Eat shares were up 0.6% to 408.60p.