JPMorgan Cazenove has warmed a bit to food delivery play Deliveroo PLC (LON:ROO) but cooled slightly on its rival, Just Eat Takeaway.com NV (LON:JET).
Just Eat issues its second-quarter trading update in mid-July and JPM reckons it is likely to be another quarter with strong order momentum but all eyes will be on the investment requirements and EBITDA (underlying earnings) margin guidance, especially for the UK, US and Germany.
“Questions will also arise around a potential launch of online grocery services in the UK/U.S. (Germany already announced),” the broker noted.
JPM reiterated its neutral stance and but cut its end-of-year price target to 9,053p target from 9,676p.
The broker acknowledged that with gross profit running at 6.1 times enterprise value (EV) – essentially, the company’s market capitalisation adjusted for debt or cash – the shares look cheap but reckons a lack of catalysts, such as mergers & acquisitions activity, is likely to prevent the shares from outperforming.
“US and South African players might be willing to acquire food-delivery assets in Europe but visibility remains low,” the broker said.
As for Deliveroo, it reports its half-year earnings in August, and the broker is expecting a strong second-quarter performance but notes that the company is running up against strong comparatives from a year ago when it seems everyone and his dog was sending out for takeaways during the first lockdown.
As with Just Eat, the rating is neutral but in Deliveroo’s case it has cranked the December 2021 price target up, to 312p from 285p previously. The price target change was ascribed to slightly higher numbers than previously anticipated.
“The recent UK court ruling in regards to Deliveroo’s rider status is a key positive and removed regulatory concerns that have been weighing on the stock; however, with well-funded players and new grocery start-ups still aggressively competing for market share, we see limited visibility on marketing levels for Deliveroo and stay on the sidelines,” the broker said.