Will markets feast on Just Eat, or get indigestion
01:00, 31 mars 2014
· Av CMC Markets
The recent IPO frenzy is set to continue this week with the launch of online food takeaway service Just Eat on the London Stock Exchange with a market capitalisation of £1.47bn, well above companies like Dominos Pizza UK.
The company is set to float between 15%-20% of its shares in a price range of between 210p and 260p which puts it on a rather indigestion inducing 100 times earnings valuation, based on its 2013 numbers.
Even for a technology stock, which this company appears to be being labelled as, this is a rather pricey valuation. In its defence the company did generate £96.8m in revenues in 2013, which is an increase of 60% on the year before, and if it continues in this vein then the valuation might be justified.
The firms IPO advisors justify the valuation in the context of this revenue growth, and the fact it is diversified in that it operates in 13 other countries, which saw it process over 40m orders on its sites in the last year alone. The company also covers a wide range of takeaway cuisines, which gives it a broad reach.
Whether you believe it is a technology company or whether it's simply a bespoke takeaway and delivery service, the earnings expectations do seem a little high when compared to an established company like Domino's Pizza.
When you look at Domino's numbers, which has been well established for quite some time the comparisons are quite stark.
Domino's Pizza UK and Ireland has a market capitalisation of £890m, and in 2013 made a pre-tax profit of £21.6m on revenues of £269m, putting it on a P/E of 20.7. On line orders recently accounted for two thirds of UK delivered sales.
This comparison gives an indication of how optimistic Just Eat's projections appear to be and the worry is that post IPO, small investors might need to reach for the Gaviscon to combat a nasty bout of indigestion.
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