Prosus’s £5bn bid for Just Eat shows the price of competition
New offer described as ‘derisory’ by rival, but it prices in the presence of Uber
Can a couple of hastily served ketchup-free burgers really be worth £10? Shouldn’t it be more like a fiver? That was the question being muttered by Lombard outside Santa’s grotto at the local community centre on Friday night. And it was pretty much the same question faced by Just Eat shareholders on Monday morning.
Prosus’s increased cash offer for the UK food-ordering business of £7.40 a share — about £5bn — had been described as “derisory” by rival all-share bidder Takeaway.com. Cat Rock Capital, an investor in both food groups, was more specific, suggesting that Just Eat was worth “at least 5 times 2020 consensus revenue”, or £9.25 a share.
However, people familiar with Prosus point out that Just Eat shares were worth only £5.89 on the day before Prosus made its first bid and that even that level had been inflated by Takeaway.com’s earlier offer. Following this logic, Prosus’s latest bid actually represented a standard 30-40 per cent takeover premium to Just Eat’s true, undisturbed share price. Of nearer £5.
How can valuations in an established sector vary so widely? Much as Santa’s spatula-wielding helpers worked out, it all depends on the competition. Up against a bowl of stale crisps from the local estate agent, the elves’ market price for two burgers became a tenner.
Similarly, with relatively limited food delivery competition in Germany and the Netherlands, Takeaway.com’s market price has averaged 8.3 times its revenue since 2016. Applying that multiple to Just Eat’s revenue, which Takeaway.com did on Monday, suggests the UK group could be worth £11 a share. Or £12 a share, if you use Cat Rock’s cash flow multiples.
But is competition in the UK sufficiently non-existent to justify this? No, say Prosus’s advisers — who make a big distinction between “3P” and “1P” markets. This is not a reference to penny pinching over ketchup sachets. Rather, it is shorthand for “third-party” delivery markets — where an app or website takes the order but the restaurant delivers — and “first-party” delivery, where one company handles everything.
In Europe’s early 3P markets, Takeaway.com was able to command a valuation multiple of 8.3 times revenue. In the US, though, fierce competition from 1P players such as Uber has cut Grubhub’s multiple to just 2.6 times estimated 2020 revenue, and 2.3 times 2021 revenue. Even in Europe, as more markets move to a 1P model, Delivery Hero’s multiple falls from 4.6 times 2020 revenue to 3.2 times 2021’s revenue.
That makes Prosus’s £7.40 in cash for Just Eat — 4 times 2020 revenue — look more reasonable. It also makes Takeaway.com’s all-share offer look like one based on a toppy and outdated valuation. Just Eat and Takeaway.com have had market-leading positions for years. But, unlike the burger stand at Santa’s grotto, they’ll be up against tougher customers from now on.
All go at Amigo
Amigo is “exactly where we want [it] to be”, said chief executive Hamish Paton 10 days ago, writes Kate Burgess. Amigo is not where its founder wants it to be, though. Shares in the lender are down three quarters in a year. Now, James Benamor, owner of 61 per cent of them, is propelling himself and a lieutenant on to Amigo’s board. Mr Paton has quit, as have chairman Stephan Wilcke, and the head of the remuneration committee. It is hard to see this as consensus over strategy.
Mr Paton, recruited in July, had been bowing to the regulator’s tough talk on pricey lending. Amigo charges nearly 50 per cent interest to borrowers with shaky credit histories who are backed by pals or parents. This spring, the watchdog fretted about risk disclosure and borrowers being sucked into a never-ending cycle of debt. Mr Paton promised tighter credit checks, more focus on winning new customers rather than relending to existing borrowers, better handling of complaints and a more cautious take on bad debts. On November 28, he said relending rates were down and new customer numbers up a fifth, but warned on growth.
Mr Benamor, by admission a disrupter even as a youf, may have found another way. The market thinks so: Amigo shares rose a tenth on Monday. But the new way shouldn’t be the old, pre-float one. The FCA has already done for payday lending and may do the same for guarantor loans. The reality is that lenders cannot operate without regulatory approval; compliance is expensive; complaints more so. That is where Amigo is. Even if its founder would prefer it wasn’t.
HSBC: Quinn-essential
HSBC’s interim boss, Noel Quinn, has reshuffled the bank’s executives, hired a new chief operating officer and planned a restructuring. If he somehow is not given the permanent role, let’s hope he’s also installed Fortnite on his computer. Otherwise, his successor really won’t have anything to do.