Berenberg initiates coverage of Just Eat Takeaway at 'sell'

The bank, which set a €16.30 price target on Just Eat, said the valuation fails to take into account the negative value associated with the company’s operations in various geographies that are unlikely ever to make money given stiff competition from multiple operators.

In addition, it reckons the company will struggle to achieve consensus value for the Grubhub asset, and that it will need to retain the proceeds of the transaction due to a funding gap.

Berenberg said the biggest issue for Just Eat is the long tail of markets.

"While JET is losing money in both the US and the UK, we see a resolution for both operations," it said. "This is not the case for most of the long-tail markets in the group, however. JET faces stiff competition in many of these markets, which are likely to remain a substantial drag on group profitability. While JET has undertaken some portfolio rationalisation, it needs to go much further."

As far as the funding gap is concerned, Berenberg estimated that Just Eat would need to raise around €1bn in new funding to achieve free cash flow breakeven if it were to do nothing with the portfolio.

"We estimate that the disposal of Grubhub could bring in a net $400m (including closure of the logistics business), but this still means a need for over €500m in new funding, reflecting ongoing negative free cash flow and the maturation of a number of debt facilities and convertibles," it said.