Shares in Just Eat (LSE: JE) have climbed from their 260p flotation price of April 2014 to 790p as I write, which is a nice three-bagger for those who saw the way the UK fast food market was going. Some might say they’re too expensive now, but I disagree — I reckon they could have a lot further to go over the next few years, and that we’ve so far seen only the beginnings of this new business sector.
I went to a birthday celebration last week, and the food was Indian, from an excellent takeaway, ordered via Just Eat. And I’ve only just discovered that my favourite local pizza place does Just Eat too, though the best fish and chip shop near me doesn’t (it uses hungryhouse, which I’ll come to shortly). But KFC next door does, and the delivery riders are coming and going all evening.
More to come
Still, most of the fast food ordering I (and my family and friends) do is by phone, and my recent observations tell me two things.
Firstly, though Just Eat has already made big inroads into the fast food business, and just about all providers are seeing the benefits of an independent joined-up delivery service, the majority of the great British public have not yet switched to online ordering — but they surely will do, especially as the iPhone generation comes to dominate the consumer side of the market.
My other main take is that, though there are rivals, though there is still plenty of untapped market, and though it might be relatively easy to set up a similar business — setting up a computer system and employing gig-economy delivery people — Just Eat has actually created some impressive barriers to entry.
The main one comes in the form of the long list of independent local sellers that have signed up for its service — and getting KFC signed up was a major coup. Who’s going to want to link with a new rival when Just Eat is the place for your food to be seen and sold?
Cementing its foothold
That brings me back to hungryhouse, which actually has a number of very good sellers on board and which is the only real online local alternative for me — and Just Eat is buying it up. In fact, only this week the company got the go-ahead from the CMA which has unconditionally cleared the acquisition.
So now, the only real options for me are Just Eat, phone, or donning my boots and hat and venturing out into the cold.
The other big deal with having a single destination for all your fast food needs is how much easier it makes it for a family when different members want different things. Fish & chips? Pizza? Indian? Thai? No great number of places to call, just order them all on the same site — and that’s the site where new sign-ups are going to head.
Forecasts put Just Eat shares on a forward P/E rating of 48 for this year, but that would drop to 35 by December 2018. That’s high by traditional standards, but with earnings growth of around 40% per year expected for this year and next (and I see more solid growth in the coming years), I reckon Just Eat shares are a bargain right now.