Just Eat: Deterioration in Orders Continues, but Trends Improving With Guidance Upgrade
Just Eat Takeaway TKWY reported a first-quarter 2023 trading update with total orders down 14% and gross transaction value down 8% (down 8% at constant currency), lower than expectations. Southern Europe, Australia, and New Zealand continue to be the main detractors with orders and GTV down 18%, but top-line performance was disappointing across the board (Northern Europe GTV flat; North America GTV down 11% aided by currency, down 14% at constant currency; U.K. and Ireland down 6%, down 1% at constant currency). Order declines were broadly expected due to tough comparables and a lower number of low-contribution orders, while lower GTV declines are the result of higher average order values (restaurants passing on inflation and Just Eat reducing the number of low-value orders) as well as positive currency effects.
Management upgraded its outlook for fiscal 2023 adjusted EBITDA to EUR 275 million from EUR 225 million, a number that includes “investments in food and nonfood adjacencies and wage costs inflation and takes into account the uncertain macroeconomic environment” and introduced top-line guidance (GTV growth from negative 4% to 2% with growth skewed toward the end of the year given soft comps from last year). Management also expects free cash flow (excluding working capital movements) to turn positive in mid-2024, which we think is achievable given recent profitability improvements and cost controls. Last, the company announced the initiation of a share-buyback program of up to EUR 150 million or around 4.4% of its current market cap, which we think is appropriate given the level of undervaluation and good liquidity/cash flow visibility.
We expect to adjust our midterm growth outlook (lower) and EBITDA estimates (higher) after we digest results, but we don’t expect to materially change our EUR 81 fair value estimate as our long-term value drivers remain intact. Shares trade deep in 5-star territory.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.