Just Eat Takeaway.com NV – Loss Widened on Rising Costs

Just Eat Takeaway.com NV (LON: JET) is an online food delivery operator in marketplace engaged in the business of connecting restaurants, which allows consumers to order food from neighbouring restaurants with a home delivery facility.

Recent News

4 August 2020: The Company issued 735 shares with a nominal value of €0.04 each, pursuant to various employee share and option plans.

11 June 2020: JET decided to combine with Grubhub Inc, to become the world's largest online food delivery company outside of China. Under the terms of the transaction, the shareholders of Grubhub will receive a total equity consideration (on a fully diluted basis) of $7.3 billion.

Half-Year Report (for the six months ended 30 June 2020,as on 12 August 2020)

In this update, the Company affirmed that it is in the fortunate position as all their markets are performing strongly. The Company has healthy gross margins and positive adjusted EBITDA across all the business segments. In H1 FY20, the Company processed 257 million orders, representing a 32% growth against H1 FY19. Subsequently, revenue grew by 44% to €1 billion in H1 FY20, as compared with €715 million in H1 FY19. Similarly, adjusted EBITDA grew by 133% in H1 FY20 vs H1 FY19. However, due to the integration related expenses connected to the combination of Just Eat and Takeaway.com, the Company reported a loss of €158 million in H1 FY20 (H1 FY19: loss of €27 million).

Share Price Performance

 
1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Just Eat Takeaway.com NV’s shares closed trading at GBX 9,122.00 on 13 August 2020, up by 1.38% against the last day closing price. Stock 52 week High and Low were GBX 9,259.19 and GBX 5,345.00, respectively.

From the technical standpoint, 14-day RSI is currently close to the overbought zone, which means there is a likelihood potential for a short-term correction in the stock price.
 
Risk Assessments

The Company might not be able to maintain a competitive position and expected margins with the increased competition with new entrants. The geopolitical changes in the new markets can impact the projected profitability. Also, the fluctuations in the commodity and foreign currency rates can increase input costs which the Group may not be able to pass on to the consumers. The prevailing uncertainty had made it difficult for the Company to predict the outcome of investments made.

Valuation Methodology


*Peer: TomTom NV, ASOS PLC, Zalando SE, Ocado Group PLC, and Auto Trader Group PLC. 

*1 EUR = 0.903785 GBP
 
Conclusion

The Group is planning to further strengthen the market positions with the aggressive investment programme. The Group is convinced that the order growth will remain robust for the remainder of the year. In Brazil, iFood continued to reflect the strong momentum of revenue growth and the order growth nearly doubled year-on-year in H1 FY20. The Group expects the transaction with Grubhub to be completed by H1 FY21, which underpins the potential for future growth. However, considering the overstretched stock value (nearly at 52-week high) after reporting a loss in H1 FY20, it is not prudent to take a fresh position in the stock.

Based on the headwinds faced by the Group, we have given a "WATCH" recommendation for Just Eat Takeaway.com NV at the closing price of GBX 9,122.00 (as on 13 August 2020), while we look how the Company will leverage the market position to overcome losses.
 
Spirax-Sarco Engineering PLC – Hiked dividend but expecting tougher second half

Spirax-Sarco Engineering PLC (LON: SPX) is a FTSE 100 index listed industrial Engineering Group. It operates through three segments, namely Chromalox, Steam Specialties, and Watson-Marlow.

Recent News:

6 August 2020: The Company announced the additional listing of 72,000 ordinary shares on the London Stock Exchange. These shares started trading on 7 August 2020.

Half-Year Report (for the six months ended 30 June 2020)

(Source: Company Website)

As on 12 August 2020, the Company released H1 FY20 results and reported a 4% decline in revenue as industrial production was down by 8%, as compared to H1 FY19. Further, the adjusted operating profit declined by 8% against H1 FY19 and reported adjusted operating profit margin at 20.9% in H1 FY20. As of 30 June 2020, net debt stood at £326.0 million (H1 FY19: £391.5 million). Notwithstanding, the Company increased the interim dividend to 33.5 pence, 5% growth against H1 FY19. Overall, the performance was resilient due to stronger than anticipated cost containment and efficiency improvement initiatives. 

Share Price Performance
 
1-Year Chart as of 13 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Spirax-Sarco Engineering PLC’s shares last traded at GBX 10,950.00 on 13 August 2020 (after the market closed), up by 1.77% against the last day closing price. Stock 52 week High and Low were GBX 11,160.00 and GBX 7,220.00, respectively.

From the technical standpoint, 14-day RSI is currently close to the overbought zone, which means there is a likelihood potential for a short-term correction in the stock price.
 
Risk Assessments

The expected lower rate of economic activity in the Q4 FY20 would impact the organic revenue growth in the second half of FY20. Moreover, the negative exchange rate movement can further impact the Group’s profitability. It is also facing fierce competition amid economic and political stability, which can affect the margins and growth trajectory.

Valuation Methodology

Conclusion

In the first half of FY20, the Company’s trading performance was resilient, which was stronger than originally feared but weaker than H1 FY19. The sales performance in Q2 FY20 was in line with the management expectations; however, the V-shaped recovery from the Covid-19 crisis has now been receded. Hence, the Company is anticipating a lower rate of economic activity in the fourth quarter. Nevertheless, the Company kept the expectations for the full-year adjusted operating profit unchanged due to the effective cost containment and efficiency improvement initiatives adopted in H1 FY20.

Based on the headwinds faced by the Group, we have given a "WATCH" recommendation for Spirax-Sarco Engineering PLC at the closing price of GBX 10,950.00 (as on 13 August 2020), while we look for any upcoming catalysts in the near term.
 
 
*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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