Analysts corner: Hargreaves Lansdown on Just Eat

Just Eat 100 dropped out of the FTSE 100 in December 2018 after shares in the delivery business lost almost a third of their value in the previous 12 months as it invested more money in logistics to help fend off the competition. Three months on and it’s set to join the index again on 18 March.

Steve Clayton, manager of the HL Select funds at Hargreaves Lansdown, shares his thoughts on its readmission:

“Just Eat’s recent run up from 550p to over 750p has been enough to propel the stock back into the FTSE 100. The food delivery sector is furiously reshaping itself at the moment. Players who used to just deliver food on behalf of branded restaurants are beginning to take orders across their platforms on behalf of takeaways who will take care of the delivery themselves. And Just Eat, which used to just connect the diners to the takeaways are beginning to offer delivery services for brands like Burger King and KFC.

“It’s a turf war, and it comes at a cost, with all the operators investing heavily in their new services. Just Eat have the advantage of a wildly profitable core business. Their UK marketplace makes cash margins approaching 50%, allowing the group to experiment with new services. Others are not so well placed. But the costs are large and now US activist investor, Cat Rock Capital Management are running a campaign to force a change of strategy onto the group.

”Cat Rock are calling on Just Eat to divest their valuable, but still loss making Latin American investment and seek a merger for their core business. The Board are having none of it, but speculation about just how much the company could be worth has propelled the stock price higher.

“With a rising trend to eat food that has been prepared outside of the home apparent all around the world, Just Eat’s leading position in many different international food delivery markets looks enticing. Rising competition in the short term may well be clouding the picture, but the spotlight is firmly upon the company. Just Eat now needs to prove that its strategy of driving an independent future can deliver more for investors than joining forces with a rival.”