Numis starts Just Eat at 'add'

Numis initiated coverage of Just Eat at ‘add’ with a 650p price target, saying the company is in an enviable position.

“The leading player in a growing market with first mover advantage, we see opportunities to grow orders, raise commissions and improve margins,” the broker said, adding there is 19% upside to its target price.

Numis pointed out that Just Eat has around a 50% share of the UK online takeaway delivery market, but only 21% if you include telephone orders and 12% including orders collected.

The brokerage said that internationally, where Just Eat has a 2% market shares, the opportunity is even greater than in the UK.

“JE currently charges restaurants a commission rate averaging 12.5% across the group and whilst there is naturally resistance to rate rises, we see upside. The incremental sales means that on our calculation, cash returns for restaurants on the platform average 12% versus 9% for those not.

“Peers charge 15% and therefore we see 100 basis points rises every two to three years as realistic; each 50bp increase adds 3% to group revenue and 9% to earnings before interest, taxes, depreciation and amortisation.”

In addition, Numis said the company’s high cash conversion of around 70%, supports its investment strategy to become market leader and justifies M&A.

At 1255 GMT, the shares were up 1.4% to 557.50p.