Revising Food Delivery Estimates to Account for Weaker Consumer Spending Outlook; Just Eat Top Pick

As a result of recent macroeconomic developments, such as geopolitical uncertainty and pandemic-related supply constraints causing inflationary pressures, which tend to dampen consumer confidence and discretionary spending, we reduce our top-line growth estimates for European food delivery companies. In addition, we revise our cost of capital forecasts upwards, as a result of increased share price volatility over the last year, which reflects industry-wide headwinds and a tightening interest rate and valuation environment, as well as a high cost of debt. Significantly reduced values but unchanged star ratings arise from the preceding factors (all three names are in the 5-star territory). We continue to expect material secular growth opportunities in food delivery and its adjacent markets (such as supermarket convenience delivery), principally driven by the steady shift from phone-based to online meal ordering. As a result of pandemic-driven lockdowns, a much greater number of new clients have chosen to utilize meal delivery services. We anticipate that cohorts acquired during the pandemic will display weaker spending habits than historical generations, which, combined with a lack of strength in discretionary spending, will result in a noticeable slowing of order growth in the medium term (2022-2024, we observe early signs of this slowdown in google search trends data, mobile app downloads, website traffic numbers and restaurant dining activity trends). In our coverage of European food delivery companies (Just Eat Takeaway, Delivery Hero, and Deliveroo), we expect Gross Transaction Value or GTV growth to underperform management forecasts in fiscal 2022, although we feel this is already reflected in current prices. Our fair value estimates for Just Eat Takeaway, Delivery Hero, and Deliveroo decrease to EUR 81, EUR 88, and GBp 215 per share, from EUR 126, EUR 97 and GBp 350 per share, respectively. Just Eat Takeaway remains our top pick.