Just Eat delivers tasty results but extra toppings disappoint

Just Eat delivered better full-year results than had been expected, but increased investment in 2018 to cope with intense competition in the online food delivery market meant guidance disappointed like a day-old kebab.

Delivering his first set of results after joining in September, chief executive Peter Plumb hailed growth in the numbers of restaurant partners joining the platform, increasing the group's coverage to more than 82,000 restaurants.

Amid strong levels of competition from the likes of Uber Eats, Deliveroo and Takeaway.com, he said: "As the new CEO, I will be increasing our investment in brand, developing markets and delivery services that will be engineered to complement our thriving marketplace business by bringing more choice to our takeaway-loving customers."

Around £50m of extra investment will look to extend the company's delivery services in the UK, Canada and the Antipodes, beefing up Skipthedishes, spicing up the push into emerging markets and blending in the HungryHouse business that was acquired in January.

Plumb hopes it should also help support growth with branded restaurant chains, which he sees as a new £18bn market opportunity. He argues the investment is both an opportunity to capture greater market share but also as a defensive measure "to insulate the business from fast-moving and well-capitalised competitors".

For 2017, revenues of £546m increased 45% on the previous year as 21.5m customers ordered 172m takeaways, a 26% increase. There was a boost from currency movements and as the SkipTheDishes acquisition increased pro forma orders 264%, which helped the Denmark-founded, UK-headquartered group grow international revenue 75% over the year to now represent 44% of the total.

Underlying earnings before interest, tax, depreciation and amortisation jumped 42% to £164m, topping the City consensus of £162m, while diluted, adjusted earnings per share were up 38% at 16.8p.

At the statutory level, Just Eat booked a £103.5m post-tax loss after booking a sizeable £191m exceptional loss from a £180m non-cash write-down of the Australia and New Zealand business.

Looking to 2018, Plumb said the core Just Eat marketplace business would remain the core driver of growth and was on course to deliver underlying EBITDA of £215-235m. But a hike in investment in brand, developing markets and delivery services are expected to result in group revenue of between £660-700m and see group underlying EBITDA held back to £165-185m.

The consensus for 2018 had been for revenue of £656m and EBITDA of £227m.

REACTION & ANALYSIS

Shares in the FTSE 100 company, which was promoted to London's benchmark last November after tripling in size since flotation in April 2014, fell more than 10% in early trade on Tuesday below 750p for the first time since the autumn.

While 2017 was another "stellar year" and materially ahead of expectations, analysts at Canaccord Genuity said, but revenue guidance for 2018 is ahead of our forecasts but EBITDA guidance is "disappointingly, materially below our forecasts" in light of another year of very significant investment.

"£50m is a really big hike in investment. This is the second time JE has done something like this. The first time (post 2017 interims), the market reacted negatively and then shrugged it off. We expect a similar reaction again."

Canaccord sees international territories becoming a material source of profits over the next few years, with established market revenue nearly doubled to £148m, but investment reducing EBITDA 12% to £12m. Developing markets also recorded rapid growth and a decline in EBITDA losses to £4m.

The broker said FY18 guidance "takes some deciphering", with EBITDA guidance comprises two ranges: underlying and another range to incorporate a new £50m of investment.

Analysts at Numis said as a consequence of the new guidance being 23% below consensus at the midpoint, they would put their recommendation under review, "until we get comfortable with the economics of the delivery model".

RBC Capital Markets kept its 'sector perform' rating, with a target price of 840p. "Just Eat is attractively positioned, in our view, enjoying a leading position in all of its markets and should sustain high levels of growth. We see potential upside to revenue expectations, although believe investments in own delivery to weigh on share price performance near-term," the analysts said.