Just Eat raises targets despite slower second-quarter growth

Directors maintained their full year guidance for underlying EBITDA at £165-185m but raised revenue guidance to £740-770m from £660-700m as investment plans were bumped up yet higher to £55-60m from £50m to target "long term growth"

The FTSE 100 group grew revenues 45% to £358.4m in the first six months of the year, up 46% on a constant currency basis and slightly slower than the 49% in the first quarter but well ahead of the £337.3m consensus forecast.

Revenues rose on the back of 24m customers ordering 104.4m curries, pizzas and kebabs, order growth of 30% for the half-year that was down on the 32% seen in the first quarter but suggested significant growth average revenue per order. Indeed, ARPO was up 9% in the half, an acceleration from the 6% a year earlier.

UK revenues were up 30%, with almost half of turnover now coming from outside the UK, with sales in Canada up 212% as the SkipTheDishes acquisition delivered on all fronts. Trading in Australia seemed to be much tougher as the transition to a hybrid delivery model got underway to take the fight to the competition, with underlying revenues down 2%.

Underlying EBITDA increased 12% to £82.7m, with the pace of growth slowing from the 42% registered over the whole of last year. Profit before tax shrank 3% to £48.1m, as the benefit of a 45% increase in revenue was offset by a reduction in gross margin from higher level of delivery orders and costs from the acquisition of Hungryhouse in the UK.

The underlying EBITDA margin fell to 49% from 52% a year before, as recently forewarned by management as they invest in marketing, technology and roll out delivery services. More investment is planned for the second half of the year from the delivery roll-out and marketing, including sponsorship of the X Factor TV talent show.

Basic earnings per share came out at 5.5p, exactly the same as a year ago, with adjusted basic EPS, which excludes long-term employee incentive costs, exceptional items, other gains and losses, foreign exchange gains and losses, amortisation of acquired intangible assets, an adjustment for the associates, was up 10% to 8.6p.

Cash generated by operations rose 13% to £77.2m.

Shares in Just Eat fell more than 2% in early trading on Tuesday to 828.2p.

Although profits are down due to investment in acquisitions, longer term these deals are a "huge positive", said market analyst Neil Wilson at Markets.com, though global expansion was coming at a cost.

"It is becoming a difficult task in managing growth and building out scale without eroding margins. Heavy investment in its own delivery network may not be the right option but management is sticking to its guns and will invest more heavily in delivery."

Analysts at Liberum said that while "some bears" may point to the static profit guidance and the raising of longer-term investment from £50m to £55m/£60m as a negative - "we disagree", declaring that they thought management are pursuing the "exactly the right strategy as this is a very high growth market and effectively what Just Eat should be doing is grabbing as much share as they can as quickly as they can to consolidate its #1 position".

Another positive Liberum observed was that around 70% of the estate is now in Tier 2-5 cities, "where competition is not only lower but also harder to set up", with the Orderpad tool has more than doubled its reach to 34.300 over 12 months.

Libeurm view the EBITDA guidance "as conservative given the operational gearing of the business", saying the "natural high operational gearing of this business suggests that, even with extra tactical spending, the chances of a beat on the EBITDA guidance is relatively high".

There was also support of the growth strategy from Investec, where analysts said "strong underlying trading in both the UK and internationally helps underpin the short-term outlook". Looking longer-term, Investec sees the push into delivery as "the right move, with the marketplace cross-sell story no longer just theory, helping to strengthen market positioning globally and expanding the addressable market".