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Deutsche Bank downgrades Just Eat to 'sell' as investment plan expected to hit profits

The German bank said while it thinks a move into delivery is a strategy to defend Just Eat's leadership position in the market, it will come at the expense of profitability
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The German bank also cut its target price for Just eat shares to 630p from 830p

Deutsche Bank has delivered a downgrade to online takeaway firm Just Eat PLC (LON:JE), moving its rating to ‘sell’ from 'hold' as it expects reductions in profitability from the company’s investment to expand into delivery services, saying the company "doesn't have the first mover advantage".

The FTSE 100-listed firm's shares were down 4.8% in late morning trading at 750p as the German bank also cut its target price to 630p from 830p.

READ: Investors baulk at Just Eat's delivery charge

In a note to clients, Deutsche Bank's analysts said that they had reduced their long-term underlying earnings (EBITDA) margin assumption for Just Eat to 33% for 2018-2020, down from 50% in 2017, stating that “delivery is fundamentally a lower-margin/lower-return business”.

They added that "while we think this move is strategic to defend Just Eat's leadership position against increased competition, it will come at the expense of profitability".

Deutsche Bank's downgrade in rating follows a slide by Just Eat shares last week after the company reported a 42% jump in underlying profits to £164mln in 2017, but said that with the planned investments in brand, developing markets and delivery services, 2018's profits will between £165-£185mln on a similar basis.

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