- Sale of US firm Grubhub could net less than one-seventh of purchase price
- Facing enormous competition in many of its markets
- Share price down 67% this year to record low
Shares in Just Eat Takeaway (JET) plunged in morning trading after Berenberg initiated coverage of the online food delivery platform with a sell rating, casting doubts that the sale of Grubhub in the US would ‘satisfy bulls’.
‘In the US, DoorDash and Uber Eats have taken substantial market share, including in Grubhub’s core urban markets,’ the investment bank’s analysts told clients. ‘Unless industry consolidation is permitted, we estimate a sale price of less than $1 billion, before logistics closure costs, and doubt that the proceeds will be returned to shareholders, as hoped.’
Grubhub was acquired just two years ago for $7.3 billion.
SHARES HIT RECORD LOWS
These concerns ate away at investor confidence, sending Just Eat Takeaway plunging nearly 20% to all-time lows of £12.58 in London.
Berenberg also raised concerns about profits potential in many of its global markets. ‘While Just Eat Takeaway is losing money in both the US and the UK, we see a resolution for both operations. This is not the case for most of the long-tail markets in the group, however. Just Eat Takeaway faces stiff competition in many of these markets, which are likely to remain a substantial drag on group profitability,’ Berenberg said.
‘While Just Eat Takeaway has undertaken some portfolio rationalisation, it needs to go much further.’
That raises questions about a possible fund gap for the company. Berenberg estimates that Just Eat Takeaway the company would need to raise around €1 billion in new funding to achieve free cash flow breakeven if it were to do nothing with the portfolio.
MIND THE FUNDING GAP
‘We estimate that the disposal of Grubhub could bring in a net $400 million (including closure of the logistics business), but this still means a need for over €500 million in new funding, reflecting ongoing negative free cash flow and the maturation of a number of debt facilities and convertibles.’
‘We believe that near-term trading will remain muted and that the Grubhub sale will disappoint,’ Berenberg concluded.
Just Eat Takeaway stock has lost 67% this year and has fallen from near £10 highs over the past 20 months.
