RBC Capital reiterates 'top pick' on Just Eat, sees re-rating from here

Just Eat got a boost on Wednesday as RBC Capital Markets reiterated its 'top pick' on the stock, saying the shares should re-rate from here.

"Just Eat shares continue to lag the sector on competition concerns," it said. "We believe a re-rating is due, which we expect to be triggered by accelerating momentum in the UK from Q2."

The bank said low consensus expectations are "very achievable" and there is "decent upside risk".

Consensus revisions have overshot on the downside, it said, but it expects group margins to improve from FY20e driving a 27% three-year earnings per share compound annual growth rate.

RBC also pointed to the fact that Just Eat's profitability is diversifying away from the UK. It expects earnings before interest, tax, depreciation and amortisation outside of the UK to represent 35% of the group in the next three years, versus 5% in FY18.

"In addition to the marketplace, we expect SkipTheDishes to be an important driver of profit growth going forward, which gives us confidence in our above-consensus earnings estimates," it said.

The bank's FY20-21 revenue estimates are 2-7% above consensus, while its FY19-21 EBITDA estimates are 6-15% above consensus.

RBC Capital has a 900p price target on the stock.

At 1545 BST, the shares were up 1.5% at 623.80p.