JPMorgan turns bearish on Just Eat, cites slow UK order growth

Just Eat was under pressure on Wednesday after JPMorgan Cazenove downgraded its recommendation on shares of the online takeaway platform to 'underweight' from 'overweight' as it named Germany's Delivery Hero its top pick in the sector.

JPM said it was turning bearish on Just Eat as it sees ongoing weakness in the UK and market share losses.

"With more than 100% of EBITDA, the UK remains the key share price driver - and the UK business is slowing quickly with +7% order growth in Q1 (after +13% in Q418)," it noted.

"High exposure to less attractive restaurants, cannibalization from delivery restaurants (finally) signed up on the JE platform and poor tech execution versus peers appears to have taken its toll."

JPM said it expects order growth for the UK to remain subdued going forward and materially reduced its UK valuation from £2.3bn to £1.7bn, causing its sum-of-the-parts target price to drop to 682p from 822p.

JPMorgan's take on Delivery Hero was much more upbeat, as it lifted the stock to 'overweight' from 'neutral', added it to its 'Analyst Focus List' and said it was its top pick in the space.

"With falling investments, accelerating top-line growth and markets likely moving into recovery phase, we see risk/reward turning," it said.

JPM also said it continues to like overweight-rated Takeaway.com, as the company's first-quarter results highlighted again that Holland is far from being mature, while Germany provides a large opportunity.

More broadly, the bank said the outlook for online takeaway platforms remains bright "but investors can't afford to play just a single theme, as share price performances are likely to diverge further from here".

At 1555 BST, Just Eat shares were down 3.8% at 672.60p.