Just Eat PLC

Just Eat Plc (LON: JE) is a United Kingdom-based high-tech company, which manages as a prominent international hybrid marketplace for online food delivery, delivering clients with a secure and easy way to order and pay for food from the Restaurant Partners. With brands across 13 countries, the global footprint of the company helps it in generating a diversified revenue base.

Recent News
On 19^th December 2019, Prosus N.V. and Takeaway.com N.V. announced their final offers to acquire the whole issued and to be issued share capital of Just Eat. Under the Final Takeaway.com Offer, the company investors will receive 0.12111 Takeaway.com shares for each Just Eat share and will own around 57.5%. of the share capital of the combined company with Takeaway.com investors owning around 42.5%. of the share capital of the combined company.

Q3 FY19 Trading Update (as on 21st October 2019)
The company announced the trading update for the three and nine months to 30 September 2019. For the third quarter of 2019, the company’s revenue increased by 25 per cent to £248 million, while the orders increased by 16 per cent to 62 million. The group’s revenue for the nine months to 30 September 2019 surged by 28 per cent to £717.8 million. Driven by speedy growth in the delivery proposition, the UK orders surged by 8 per cent to 33 million for the period. The company’s Canadian subsidiary SkipTheDishes has been performing well with double-digit growth. The company witnessed a strong performance in Switzerland and Italy. The Australian business stayed on its recovery path, with improving momentum during the current period, resulting in double digit-order growth. The company’s iFood with more than 21 million orders in September had shown exceptional growth.

Share Price Performance

Daily Chart as at December-30-19, before the market closed (Source: Thomson Reuters)

On 30th December 2019, Just Eat PLC shares were trading at GBX 839.20 at the time of writing before the market close (at 1:29 PM GMT), up by 1.157% against the previous day closing price. Stock's 52 weeks High and Low are GBX 862.60/GBX 569.60. The company's stock beta stood at 1.30, reflecting the higher volatility as compared to the benchmark index.

Conclusion
From the perspective of the market, the food delivery market worth of around 28 billion pounds. Delivery logistics provides access to £476 billion addressable markets by broadening restaurant supply and opening up new meal occasions.

The company is seeing robust growth in several of the markets, including Europe, Canada, and Australia, where it is starting to gain the benefits of the turnaround strategy.The company is witnessing a structural shift, with growing demand on the platform from clients for wider cuisine choice and more meal occasions, driven by swift service restaurant chains. In the UK delivery business, the company is seeing strong growth. Moreover, with growing pressure from investors, Just Eat is focussing on the technological innovation to stand out in the food-delivery space. In full-year 2019, the company stay on track to deliver revenue and underlying EBITDA guidance.
Over the course of 4 years (FY14 - FY18), the company’s revenue surged from £157.00 million in FY14 to £779.50 million in FY18. Compounded annual growth rate (CAGR) stood at 50 per cent. While adjusted EBITDA average recorded a stellar CAGR growth of ~52% and average order value recorded a CAGR growth of 12% during the same period.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 829.60 (as on 27th December 2019).

Next PLC

Next PLC (LON: NXT) is a UK based international clothing, home products, accessories and footwear retailer. The group offers products through brick and mortar stores, online services as well as mail-order operations. The group has differentiated its operations in seven operating segments being Retail, Online, International Retail, Sourcing, Finance under the brand name NEXT, Lipsy and Other.

On 3^rd January 2020, the company will announce the Q4 trading statement.

Trading Statement (as on 30^th October 2019)
The company announced the trading statement for the third quarter to 26^th October 2019. For the third quarter of 2019, the company’s full price was up by 2% as compared with the last year, marginally ahead of guidance given in September 2019. While the year to date (Year to 26 Oct) full-price sales increased by 3.5 per cent on last year.


(Source: Trading Statement, Company Website)

The above image shows the sales performance by month versus last year. In September, the sales were unfavourably affected by unusually warm weather and the company saw a substantial increase in October when the temperature fell. The company do not anticipate sales progress for the remainder of the year to be as robust as was in October 2019.

Share Price Performance

Daily Chart as at December-30-19, before the market closed (Source: Thomson Reuters)

On 30th December 2019, Next PLC shares were trading at GBX 7,124 at the time of writing before the market close (at 2:15 PM GMT), down by 2.008% against the previous day closing price. Stock's 52 weeks High and Low are GBX 7,358/GBX 3,975. The company's stock beta stood at 1.09, reflecting the higher volatility as compared to the benchmark index.

Valuation Methodology 


*Peers: Marks and Spencer Group PLC, Associated British Foods PLC, Kingfisher PLC, B&M European Value Retail SA, Dixons Carphone PLC, JD Sports Fashion PLC, Dunelm Group PLC, and Ted Baker PLC.

Conclusion
For the financial year 2020, the company expected full-price sales growth of 3.6% and full-year profit maintained at £725 million. The company has shown decent growth in the financial performance for the third quarter of the financial year 2020.The company does not foresee any significant impact of Brexit on its operations and financials. The sales would be assisted by positive earnings with continued strengthening expected in 2019. The growing online segment can help the company to improve its margins, but it will have a negative impact on the retail segment business due to a decrease in demand and higher operational costs burden. There is also the risk that the company might not be able to compete with the established online players.

Presently, the company is trading near the 52-week high, raising doubts at its upside potential at the current price level. The company’s trailing 12 months P/E, P/CF, EV/Sales and EV/EBITDA multiples are significantly higher as compared to the trailing 12 months industry multiple.

Based on the above factors and macro headwinds, we recommend investors to keep a “Watch” at the closing price of GBX 7,270 (as on 27th December 2019), with support from few catalysts needs to be evaluated at a later stage. 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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