Investec initiates coverage of Just Eat with 'buy' rating

Just Eat’s shares rose on Tuesday after Investec initiated its coverage of the stock with a ‘buy’ rating.

Investec said the online take-away food ordering company is comparatively valued to platform peers, such as Rightmove, on enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA), despite offering “much higher growth”.

“Recent market weakness provides a good entry point to acquire what we believe is an industry-leading and highly cash generative growth company,” said Investec analyst Alex Paterson.

“Whilst competition is intensifying, particularly at the premium end of the market, we believe barriers to both entry and switching in the mass market are high.”

Paterson said Just Eat offers an estimated 22.9% revenue compound annual growth rate (CAGR) from 2015 to 2020 and around 32.3% EBITDA CAGR as margins rise through operational maturity.

The company’s recent acquisitions should boost scale and accelerate breakeven in countries outside of the UK, Denmark and Australia, Paterson added.

“The group remains focused on being a mass market online marketplace and has avoided direct ownership of capital and labour intensive delivery arms in its main markets,” the analyst said.

“We believe concerns over rising competition are exaggerated as new entrants are predominantly targeting the premium end of the market and charging unsustainably high fees, whether through commission, delivery charges, or both, which are only affordable for a small percentage of the population.”

Investec issued a discounted cash flow target price of 435p.

Shares rose 1.02% to 374.90p at 1024 GMT.