Analysts at RBC Capital have raised their target price for Delivery Hero (ETR:DHER, OTCQX:DLVHF) to €85 from €75 owing to higher EBITDA forecasts, and reiterate an 'Outperform' rating on the German food delivery firm, which they prefer to London-listed Just Eat Takeaway.com NV (LSE:JET, NASDAQ:GRUB).
In a note to clients, the RBC analysts said: "We continue to view Delivery Hero as well-positioned, owing to its leading market positions, and expect its equity story to become more attractive to investors over the coming year as it moves towards positive profitability and free cash flow."
Having carried out an analysis estimating the number of customers Delivery Hero serves at both a Group and regional level, as well as order frequency historically, based on recent incremental disclosure, they estimate that Delivery Hero served almost 50mln customers last year, which on an organic basis will only slightly increase this year, after significantly expanding in pandemic-hit 2020 and 2021.
The analysts said: "We believe customer acquisition particularly slowed in Asia this year, while order frequency has declined in MENA. We take a conservative view going forward, anticipating lower levels of customer acquisition and reduced growth in order frequency of 1-3% per annum."
For FY23, they have lowered their GMV (gross merchandise value) forecast for Delivery Hero to €49.6bn, now assuming growth of 11% year-on-year on a pro-forma basis. The forecast takes into account a more normalised growth outlook for food delivery, a more challenging macro environment near term and the impact of measures on volume to enhance profitability, the analysts said.
But, they noted: "Our FY23 adj. EBITDA forecast more than doubles, in line with management's recent guidance, and our FY24 estimate increases by 15%. Driving this is a better-than-expected development in order economics (gross margin).
"We estimate a FCF outflow of c.€300mln in FY23, a substantial decline compared to FY22, and anticipate FCF to reach an almost €200m inflow in FY24."
The RBC analysts said their regional DCF analysis implies the greatest value for MENA at €38 per share and Korea at €25 per share. They value the rest of Asia at €9 per share, Americas at €10, Europe at €9 and Integrated Verticals at -€7.
The analysts concluded: "We prefer DHER over JET because of its more attractive double-digit growth outlook and material EBITDA and cash flow potential. We also see scope for EBITDA upgrades for JET, but an underwhelming growth outlook and higher risk of disappointment keeps us on the side-lines."