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Just Eat’s declining valuation found some relief on Friday after it announced sale of its stake in the Brazilian food company iFood for $1.8bn (€1.8bn, £1.5bn).
The shares jumped 35% to £19 - even though it was a discounted sale following its rejection of a $2.3bn offer in 2021. Despite Friday's leap, Just Eat stock is down 62% from its £100 pandemic-era peak hit in October 2020.
Global food delivery companies such as Delivery Hero (DHER), Deliveroo (ROO) and DoorDash (DASH) have all faced a similar fate of declining valuations in the past six months, as the whole sector deals with changing consumer behaviour in a post-lockdown, high inflation era.
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Just Eat’s one third ownership in iFood will be bought by Dutch investment group Prosus, which already owns the other two thirds.
Unlike last year, when it planned to share the proceeds of the sale with shareholders, the company said now intends to retain all of the sale proceeds. If Just Eat could make most of this cash, it could come back into the lead in an ever competitive food delivery market.
Analysts believe Just Eat is likely to also divest recently acquired GrubHub, potentially at a discounted price, as the company shifts its focus to the highly competitive European market.
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Changing consumer behaviour
Home delivery quickly came out of fashion as lock down measures lifted, as consumers made the most of being able to eat out again. The current high cost of living further deteriorated demand for the service.
Just Eat's interim results showed a 7% decline in take away orders. Although this was compensated by higher transaction costs, which resulted in revenue growth of 7%, markets did not view this as a positive given the current economic climate and share prices remained depressed. Just Eat (JE) valuation has lowered almost 40% since the start of 2022.
Competitors of Just Eat have seen a similar trend, Delivery Hero (DHER), Deliveroo (ROO) and DoorDash (DASH) have all lost more than half of their share value in the past year.
Russell Pointon, Director of Consumer at Edison Group comments: “The long-term share price performance of the food delivery companies has been very disappointing as they chased scale and geographic coverage with relatively limited returns due to high levels of competition. Therefore, any signs of increasing focus should rightly be welcomed.”
Improving and refocusing
Just Eat has made it publicly clear for a while its intentions to divest iFood if the right offer were to come along. In fact it may have missed a good opportunity when it rejected an offer for $2.3bn last year.
Russell Pointon comments “During its Capital Market’s Day in October 2021, the company indicated that half of any proceeds received would be distributed to shareholders. This deal achieved a lower valuation of €1.8bn. This is a strong financial return for Just Eat during its ownership, but the company has announced it will now retain all of the proceeds, demonstrating how times have changed.”
This cash is likely to come in very useful for improving company financials, Danni Hewson analyst at AJ Bell comments : “A €1.8 billion cash injection could be very helpful in terms of paying down debt and potentially marks a shift in Just Eat’s approach”
Just Eat may also be forced to sell American delivery company Grubhub, potentially at a discounted rate after purchasing it in 2020 for $7.3bn. This would not only be a bid to improve financials but also to shift focus to its European market.
Hewson says “This retrenchment to a European focus makes sense when you consider how fierce the competition is on this side of the Atlantic.”
For its immediate survival, Hewson believes despite the rising costs, Just Eat will have to “maintain promotional spend to protect and grow its market share”.
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