- Just Eat Takeaway released their full-year results today.
- I believe the conference call today is a pivotal moment.
- Management is talking with lots of suitors about Grubhub.
- JET continues to own many high-quality food delivery assets.
Just Eat Takeaway released their full-year results today and I wanted to share my thoughts on them.
In every article, I try to discuss one hidden gem in Just Eat Takeaway (GRUB). Today I want to focus on Menulog. When Takeaway management acquired Just Eat in 2019 Menulog was a suboptimal player in Australia and management put no value to the operation. But with great execution (in 2021 orders more than doubled) Menulog and Uber Eats (UBER) are both approximately as big. Australia is a big growth market that has benefitted economically from the success of China. Rumors have it DoorDash (DASH) was interested in acquiring this operation for a multi-billion dollar sum.
The sum of parts valuation of JET continues to make no sense and does not reflect many of the high-quality assets inside the enterprise. Theoretically JET could spin off a small portion of its operations at a sum higher than the market cap. The risk of a hostile takeover is significant. I believe management who owns a big chunk of the company will do what's best to maximize shareholder value and I believe today's presentation is the start. Compared to previous presentations I would say the tone of voice has changed.
The only way to solve JET's huge undervaluation and maximize shareholder value is through corporate action and prudent capital allocation (buybacks). While I believe management has been significantly better capital allocators than the market gives them credit for, even management is starting to recognize action must be taken.
The symbolic departure from small markets Norway and Portugal is a signal from management that capital allocation is one of their top priorities - if not their top priority.
In the call, it's clear that management is very seriously considering what to do with their Grubhub operation. Private Equity offers but also strategic partnerships are on the board.
With the rise of last-mile delivery, Grubhub's strategic value has only increased since the acquisition in 2020. Grubhub may have lost market share but is still a serious competitor with a huge restaurant supply. Grubhub is the only way strategic players in last-mile delivery can provide a food delivery offering in a capital-efficient way.
'We are looking at all options, and our most important requirement is to strengthen Grubhub as a business.'~Jitse Groen
I believe it has dawned on management that JET alone cannot maximize Grubhub's value. Something that I personally also did not fully recognize last year (I still think the market is far too harsh on JET). Let's run a scenario. Spin-off 50% of Grubhub to Amazon, add the Grubhub Plus offering to the Amazon prime subscription. Two years later Grubhub may have 30-40% market share in food delivery and much higher shares in its core regions. The 50% remaining stake could be worth $7 billion-plus.
I just want to note again that Grubhub Plus has 3 million active subscribers. Grubhub plus has been successful and makes Grubhub's strategic value only higher.
JET management knows how valuable iFood, Skip The Dishes, Just Eat and the Takeaway brands are. Buying back shares even at 70 or 80 euro per share(more than double the current price) can be significantly aggregative long-term.
The fee caps continue to be a significant drag on profitability. I think the market is too fearful of fee caps. I do not see how permanent fee caps can be legal given the constitution and rules about things like interstate commerce etc. But we'll see.
I think UK results were better than expected. Since the significant scale-up of logistics; margins have fallen at a rapid pace. Firstly I think the profitability of the marketplace that is funding the logistics is hidden and underestimated as we discussed before. Secondly, I am optimistic about the long-term ROIC of logistics. E-bikes and hubs are quite expensive but at high logistical efficiency and reasonable delivery fees, the ROIC can still be quite high (the market is pricing in negative). Currently, management is disrupting London with low delivery fees and so has negative EBITDA margins on those logistics orders. Short to mid-term JET should be able to close the restaurant supply gap and become at least as big as Deliveroo in London (A duopoly can still be highly profitable). JET may also be able to put Deliveroo out of business, but unfortunately, Deliveroo has a strong balance sheet and good gross margins making this unlikely but not impossible.
It's just a matter of time until corporate action will provide management with a lot of capital and regained confidence from the market. When that happens the stock price can re-rate back to a 0.5 - 1 times GTV level plus iFood at $3-4 billion which is multitudes of the current valuation.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of GRUB, TKAYF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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