Just Eat delivers tasty numbers, but CEO dismounts

Just Eat said profits for the past year were ahead of forecasts but and are likely to accelerate in the coming year, but that chief executive Peter Plumb has left the online takeaway food marketplace a little over a year after he started.

The FTSE 250 company, which Plumb joined after nine years as boss of Moneysupermarket in September 2017, said chief customer officer Peter Duffy would step in as interim CEO with immediate effect and that the search for a permanent replacement has begun.

After a year in which the company integrated new acquisitions and launched delivery services in several of its markets, it said full year orders for 2018 had grown 28% to 221m, leading to revenue growth of 43% to roughly £780m and underlying earnings before interest, tax, depreciation and amortisation up 5-6% to a range of £172-174m. The average forecast from across the City's analysts was for revenue of £775m and underlying EBITDA of £168m.

For 2019, Just Eat plans to "leverage the improvements we have made in our marketplace business to drive order and revenue growth, while we now also expect to grow marketplace EBITDA margins year on year", with 2016 Canadian acquisition SkipTheDishes, the first of the online takeaway ordering businesses to also include delivery services, expected to report its first full year profit.

The board, now excluding Plumb, said it will invest the increased profit to accelerate the delivery initiatives "along the pathway towards profitability", principally in the UK and Australia, with delivery services continuing to be rolled out in certain areas.

"We will leverage the improvements we have made in our marketplace business to drive order and revenue growth, while we now also expect to grow marketplace EBITDA margins year on year," the company said.

Early guidance for the coming full year was for revenue growth of at least 28% to £1-1.1bn and growth of underlying EBITDA of 6-19% to £185-205m. Analysts had pencilled in revenue growth of £995m with underlying EBITDA of £204m.

The earnings target excludes the operations in Mexico and Brazil, which are managed by joint venture partner iFood, in which Just Eat has a 33% stake, and will be excluded from this figure from 2019 onwards, the company said. The JV is now expected to make EBITDA losses of £80-100m under its new strategy, which analysts suggested implied a major shift and the addition of delivery services.

Plumb, who had clashed with investors last year over his plans to increase investment in growth, said: "The business is in good health, and now is the right time for me to step aside and make way for a new leader for the next exciting wave of growth."

Chairman Mike Evans thanked Plumb "for setting Just Eat on a new course which better places it to address a much larger and rapidly expanding market" and said Duffy and the senior leadership team "will continue to drive the execution of our strategy, which has the full backing of the board".

In December, 2% shareholder Cat Rock, a US-based small hedge fund, called for the board to produce a new three-year plan where management pay would be linked to growth in profit rather than revenue, or else look at alternatives such as selling the stake iFood to recoup up to £650m.

MARKET REACTION & ANALYSIS

Just Eat shares, having tripled since listing in 2014 to an all-time high above 900p early last year, catapulting the company temporarily into the FTSE 100, lost more than a third of their value late last summer amid fears over the level of investment the company was making in the business and resulting profit margins, together with the threat from deep-pocketed rivals Uber Eats and Deliveroo.

Investors seemed spooked by Plumb's £50m investment plan to fund the group’s move to offer restaurants a delivery service as well as an online marketplace for their takeaway food.

Analyst Ian Whittaker at broker Liberum said the departure of Plumb might be taken well by investors as he "was slightly divisive – we thought he had the right strategy, others didn’t and the recent letter from 2% shareholder Cat Rock showed the level of dissatisfaction".

Whittaker also said the committment to raising EBITDA margins from 2019 onwards was one of Cat Rock’s calls and should be taken well by shareholders generally, while the 2019 revenue performance is much better than expected and the deconsolidation of iFood from numbers "will raise hopes Just Eat will sells its stake to a strategic buyer who would focus on iFood’s market potential not the EBITDA losses".

Guidance for the iFood JV to make EBITDA losses of £80-100m under its new strategy, given Liberum had expected a profit, "suggests a major shift (we think more towards delivery)".

James Lockyer at Peel Hunt, who has a 'sell' on the shares, focused on the point that although marketplace margins are now likely to increase in FY19 rather than being flat, guidance for EBITDA implies stronger investment in delivery is likely and that he will have to cut his current estimate of £223.2m by around 13%.

RBC Capital Markets was reassured by the 2019 guidance. "Just Eat's investment in delivery services will drive significant revenue upside and accordingly higher long-term profits and returns, despite a reduced margin outlook. Amidst an increasingly competitive landscape, we believe JustEat is well positioned owing to its market leading positions and strong customer loyalty.

"Meanwhile, Just Eat continues to trade at a 20% discount to global internet takeaway peers despite historically trading above."