When I last looked at Just Eat (LSE: JE), there was a buyout offer from Prosus on the table. And there was much talk of a possible merger with Takeaway.com. Since then, the Takeaway.com merger has progressed to 90% acceptance. And a new combined company should take its place on the London Stock Exchange early next month.
Just Eat Takeaway.com will have the ticker JET, and existing Just Eat shareholders will get the new shares. But there is the spectre of a UK Competition and Markets Authority investigation. So it’s perhaps not a done deal just yet.
Yet I do think consolidation in the food delivery business was inevitable. It’s surely not one that can support large numbers of competitors. How does a family order different foods when someone’s favoured burger is delivered by Just Eat, someone else’s pizza must come through StuffYourFace.com, and yet another wants yakisoba via Noodles@Home?
Anyway, I think it looks like a possibly exciting market to invest in. And the future winners will surely be decided on by who can sign up the biggest fast food providers today.
McDelivery
To that end, Just Eat has pulled off a bit of a coup in signing up McDonald’s. The agreement covers the UK and Ireland, which makes it “McDonald’s second exclusive delivery partner for McDelivery.” I’m not entirely sure I understand how a second partner can be ‘exclusive’, but marketing English does often seem to diverge from the real kind.
Still, it’s clearly a significant development, coming so soon after Just Eat’s delivery tie-up with Greggs.
We got a year-end trading update on Tuesday too, which looked good. Apparently “2019 concluded in line with the board’s expectations.”
The company delivered 254 million orders, bringing in revenue of about £1bn. And it expects to report underlying EBITDA of around £200m. That’s a lot of profit from delivering food, and sales are growing.
UK orders rose 9% in 2019, with other markets also growing. Q4 continued the momentum from Q3, in Australia, Italy and Switzerland. And the firm reported “continued strong growth in Canada” too.
Buy or sell?
There’s no doubt that Just Eat is one of the biggest growth stocks in town right now, but that alone makes me nervous. It’s certainly possible to make very good profits from new growth stocks like, for example, Boohoo.
The trouble is, growth can be erratic and can go through boom-and-bust cycles. And I’m very wary of investing in a growth story when investors have already piled in and share valuations are high.
Expectations for the 2019 year just ended put Just Eat shares on a P/E of 97. Strong growth forecasts for the next two years would drop that to around 40, and I see that as becoming attractive.
But, as with most early growth stocks, I see very little safety margin, and that puts me off.
I wouldn’t buy right now anyway, not before the Takeaway.com deal is settled and we see figures for the newly-merged company. I’m on the fence. I’ll wait and see.