Just Eat (JE/) ... more fine dining than Grub?

Tuesday 27th October 2015

Pursuant to today's warning by the US listed online restaurant order and delivery service, GrubHub (GRUB US, mkt cap $2.2 billion), I sold short a few Just Eat (JE/ LN, mkt cap £2.9 billion), the UK listed online restaurant order and delivery service. 

This was not a difficult decision to make. 

You may reckon that JE/ with its superior market capitalization to GRUB is as distinguished in terms of its prospective P&L. However, this is not the case. 

For sales:

• GRUB is forecast* to achieve £237 million in sales in 2015, rising 29% to £305 million in 2016. 

by contrast

• JE/ is forecast* to achieve £235 million in sales in 2015, rising 34% to £315 million in 2016.

In terms of EBITDA and EBIT:

• GRUB is expected* to deliver £72/44 million in EBITDA/EBIT in 2015, rising to £96/63 million EBITDA/EBIT in 2016. 

while

• JE/ is penciled* in for £55/48 million in EBITDA/EBIT in 2015, rising to £89/83 million in EBITDA/EBIT in 2016. 

The major difference between the two companies appears to be in valuation:

• GRUB trades* on 40x this year's earnings, falling to 31x 2016. Or alternatively an EV/EBITDA multiple of 16.9x 2015 falling to 12.7x 2016.

as compared to

• JE/ trading* on 76x this year's earnings, falling to 47x 2016. Or alternatively an EV/EBITDA multiple of 49x 2015 falling to 30x 2016. 

*Bloomberg consensus

So what gives? 

I reckon one set of valuations is wrong. US investor appetite would suggest it's Just Eat's. 

Consequently I sold short. 

GRUB share price as compared to JE/
Source: Bloomberg

GRUB P/E de-rating as compared to JE/
Forward P/E multiple
Source: Bloomberg

GRUB EV/EBITDA de-rating as compared to JE/
Forward EV/EBITDA multiple
Source: Bloomberg

And another thing

GRUB's warning (and subsequent slide in value) is probably unhelpful for any positive read across to Foodpanda, which no doubt explains why Rocket Internet fell 6% on the day. 

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