Just Eat's success goes hand in hand with the shrinking of the UK's traditional restaurant industry in a post-Brexit landscape.
— Jason Clampet
The U.K.’s penchant for takeaway food may propel restaurant delivery firm Just Eat Plc into the benchmark FTSE 100 stock index after surging more than threefold since its April 2014 initial public offering.
Just Eat’s market capitalization of about 5.6 billion pounds ($7.5 billion) may qualify the stock to enter the FTSE 100 Index next month, the London Stock Exchange Group said on Monday. The London-based company has leapfrogged supermarket chains J Sainsbury Plc and Wm Morrison Supermarkets Plc along the way.
Its meteoric rise has come despite stiff competition from much larger rivals Amazon.com Inc. and Uber Technologies Inc., the loss of two top executives within months and the regulatory rigor that comes with an upstart shaking up traditional markets. Not to mention the confidence-eroding political backdrop of Brexit.
“Just Eat appears to be growing the market when it comes to food deliveries, with the simplicity of ordering and payment, alongside increased choice and a ratings system meaning people are increasingly likely to order in rather than head down to their local supermarket to buy ingredients,” Joshua Mahony, a market analyst at IG Group Holdings Plc in London, said in an email. The company’s low overheads “stand in stark contrast to the huge requirements and costs associated with a nationwide supermarket.”
Researcher NPD Group Inc. estimated in March that the delivery market in Britain was worth 3.6 billion pounds last year, almost 50 percent more than in 2008. NPD sees British consumers spending a further 656 million pounds on food delivery by 2019, the researcher said on Nov. 15.
Just Eat’s stock has equally outperformed restaurant operators, such as Comptoir Libanais owner Comptoir Group and Franco Manca owner The Fulham Shore Plc, which have reported a slowdown as British consumers’ confidence in the economy steadily declined since last year’s vote to leave the European Union.
Contributing to its success is the company’s market-leading position in all 12 of the countries in which it operates, adding a defensive trait as consumers seek sites with the biggest range of listings, Liberum analysts Ian Whittaker and Annick Maas said in a report earlier this month.
“Market leaders among online takeaway ordering platforms, similar to the classified portals, benefit from network effects,” the analysts said, initiating coverage with a buy recommendation. “Being number one in a market is key to the business’s ongoing success.”
Just Eat hasn’t been immune to the malaise afflicting restaurateurs. It had a sputtering start to the year as U.K. order growth slowed amid concerns that recent entrants to the food-delivery market, Amazon and Uber, will squeeze margins and take market share.
The departure in February of Chief Executive Officer David Buttress, who launched the company’s U.K. business in 2006, contributed to a 14 percent decline in the stock in the first two months of the year.
Dealt a Blow
It was dealt another knock in June, when Buttress’s interim replacement, Chairman John Hughes, died suddenly after a short illness. The depleted leadership was then slapped with an in-depth probe by U.K. regulators on a recent acquisition, followed by a government proposal to abolish charges on purchases made with credit or debit cards that sent the shares tumbling once more.
Despite the challenges, the shares have still managed to gain 41 percent this year as the bulls reigned. Of 18 analyst ratings, 14 are buys and four are holds, according to data compiled by Bloomberg. None advises selling the stock.
“U.K. growth has proven more resilient than we expected,” Morgan Stanley analysts including Andrea Ferraz wrote in a note earlier this month, upgrading their recommendation on Just Eat to equalweight. “Customers are spending more on delivery and it seems to be coming from supermarket or restaurant spend rather than existing platforms.”
Changes to the FTSE 100 Index will be announced on Wednesday after the market close, according to the stock exchange. Other potential candidates to join the index include DS Smith Plc, Halma Plc and John Wood Group Plc, it said.
©2017 Bloomberg L.P.