Berenberg ups Just Eat target price after solid Q1

Berenberg bumped its price target on Just Eat to 880p from 840p on Wednesday following better-than-expected first-quarter numbers, which saw revenue beat the bank's estimate by 9%.

Berenberg, which rates the stock at 'buy', said its estimates now sit above the top end of the revenue guidance range.

"Going into these results we were already of the view that the 2018 revenue guidance looked somewhat conservative and we sat towards the upper end. After the strong Q1 outperformance, however, we update our estimates and now forecast 2018 revenues of £731m, which is comfortably above the £660m-700m range."

Berenberg said strong momentum from SkipTheDishes and the developing markets are the key drivers of its upgrades.

"Both of these regions are currently taking on investment; Skip is loss-making and Spain and Italy are effectively being run at breakeven with outperformance being reinvested in growth. Therefore, we assume that growth in revenues has a more muted effect at the EBITDA level."

The bank said it still reckons the risk/reward from increased investments into own delivery is highly attractive and a good use of capital. "Early data shows that delivery has a positive halo effect on the marketplace business, can help acquire new customers and can negatively affect competitors’ growth," it said.

By leveraging its existing brand, corporate overheads and marketplace customers, Just Eat has as good a chance as any of reaching profitability in delivery, Berenberg said, seeing a solid return on its investment in the mid-term.

"We could see further upside should the June capital markets day give us more clarity and comfort on the delivery strategy and its future returns."

At 1550 BST, the shares were down 0.8% to 798.60p.