Just Eat rallies as RBC Capital highlights M&A potential

Just Eat was the standout gainer on the FTSE 100 on Friday as RBC Capital Markets mulled over its M&A prospects.

In a note in which it considered the most likely potential internet M&A scenarios, RBC said the company’s cash reserves and more sophisticated data analytics could benefit Takeaway.com and provide greater firepower to compete with Delivery Hero in Germany.

In the same note, RBC argued that Asos, Zalando and Ocado were “the most likely take-out candidates” in its coverage and as a result, it applied a 10% M&A premium to its valuation for those stocks.

Accordingly, it lifted its price target on outperform-rated Asos to 8,100p from 7,400p, on underperform-rated Zalando to €41 from €35 and on sector-perform rated Ocado to 525p from 320p.

RBC said its new price target for Ocado also reflects its anticipation for a deal being signed each year in its 10-year discounted-cash flow.

The bank considered the scenario that Bestseller, a privately-held clothing company based in Denmark, which currently owns 29.5% of Asos shares and 10% of Zalando's, acquires the remaining shares in either.

“For the same rationale that Richemont acquired Yoox Net-a-Porter, Bestseller could hypothetically seek to strengthen its efforts in e-commerce by taking full control of either group,” it said.

It also said that Amazon may seek to purchase an asset within the fashion industry in order to build its credibility and that by buying Asos or Zalando, it would be able to strengthen its relationships with branded suppliers that are currently resistant to a partnership as well as more rapidly improve the curation and front-end user experience.

Another potential scenario was that Alibaba or JD.com buys Asos or Zalando.

“Both Chinese retailers have ambitions to expand globally, and therefore an acquisition would accelerate their penetration in Europe,” RBC said.

Meanwhile, a merger between Zalando and Asos was also highlighted as a possibility.

“As Amazon continues to dominate the internet retail industry and focus its efforts on penetrating the fashion category, we think this has the potential to incentivise smaller competitors to consolidate. ASOS and Zalando’s regional and business strengths are complementary, in our view, and the two companies share a common shareholder (Bestseller).”

At 1245 GMT, Just Eat was up 3.3% to 828.40p, while Ocado was down 3.7% to 499.90p and Asos rose 1.9% to 7,216p.