Deutsche Bank downgrades Just Eat on valuation

Shares in Just Eat fell on Friday as Deutsche Bank cut the stock to ‘hold’ from ‘buy’, keeping the target price at 830p.

The bank said it expects the incoming CEO to update the market in 2018 on strategy and growth opportunities for the group.

“We think extension into take-away delivery, more alliances with branded restaurants and geographic expansion are all possibilities. Although these moves would be positive growth drivers in the medium to long term, they could come at the expense of near term margins.”

Deutsche pointed out that it has been consistently ahead of consensus for the last 18 months, but now, having incorporated added investment into its forecasts, it is 6-7% below consensus EBITDA in 2018 and 2019 estimates.

“With the shares now trading within 2% of our target price, the price-to-earnings at multi-year highs and the valuation fair relative to growth prospects, we move to hold from buy.”

On Thursday, the Competition and Markets Authority unconditionally cleared Just Eat’s acquisition of Hungryhouse, saying the deal does not raise any competition concerns.

The competition watchdog found that Hungryhouse presently provides limited competition to Just Eat because it is much smaller in size and offers too few unique restaurants. This makes it increasingly difficult for Hungryhouse to attract and retain consumers. In addition, it said that the industry is evolving rapidly following the entry of platforms such as Deliveroo, UberEATS and Amazon, which also manage or facilitate delivery services on behalf of restaurants.

“These companies generally present a greater competitive challenge to Just Eat than Hungryhouse, and this is likely to grow as they expand,” it said.

At 0910 GMT, the shares were down 4.1% to 790.50p.