We often moan that fast-growing, technology-driven companies in Britain either sell out or take their foot off the throttle when they reach a certain size. They don’t seem to have the ambition of an Uber or an Amazon, say. No one could throw that accusation at Just Eat, the online takeaway business that this month announced plans to spend the thick end of half a billion pounds on Menulog, an Australian business, and yesterday unveiled details of the capital-raising to finance it.
It is raising £445 million by way of a placing and open offer fully underwritten by JP Morgan and Goldman Sachs. After a bookbuild yesterday, the offer price was set at 425p, a 2.3 per cent discount to the closing price of 435.2p, which has already dived from a high of 495p just before the deal was announced. Shareholders are being offered five new shares for every 27 they own.
Unlike a lot of online business stock market debutants last year, Just Eat has done well by its investors, the shares climbing from the 260p offer price. It has delivered excellent growth and boosted its army of active users by 37 per cent to 8.1 million across 13 countries.
Menulog would give Just Eat the number one position in Australia and New Zealand, a market estimated to be worth £1.6 billion a year in potential commissions. The company took 1.8 million orders in the three months to March 31, up 96 per cent.
The bull case is that in an industry where consumers and restaurants are so fragmented, the agencies in the middle rapidly consolidate to one player. The winner takes all. Once a customer has the Just Eat or Menulog app on their phone, they are going to be enormously sticky.
Menulog is growing very fast. But the purchase price is equivalent to 370 times pre-tax profits and 33 times sales. That is dotcom territory, though peer three years into the future and the profits multiple could, if all goes well, fall to the mid-20s.
Worryingly, neither the three biggest pre-IPO shareholders, which still own 44 per cent of the company, nor the most prominent directors, plan to buy a single new share in the offer. It would be nice to recommend the shares of a British champion trying to conquer the world. Just Eat is commendably ambitious, but only the boldest should risk ordering this takeaway.
Revenue £157m
Op profit £19m
MY ADVICE Avoid
WHY Company insiders are shunning the offer, while the Menulog price leaves no room for disappointment
If only all companies raising capital from shareholders were as grateful as Booker. The cash-and-carry group has announced another capital distribution to shareholders to repay them for stumping up £124 million to buy Makro in 2012. A serving of £62 million, or 3.5p a share, follows a £61 million starter in July last year, while a similar amount will be paid out in July next year.
The distribution, which will be paid in tax-efficient B shares, helped to push Booker’s share price 11 per cent higher to 169p yesterday.
The planned acquisition of the lossmaking group that owns Londis and Budgens also boosted investor sentiment. Assuming the competition authorities do not block it, the deal gives Booker £833 million of potential additional annual sales for a £40 million outlay. It also gives it access to Budgens’ fresh food supply chain, which can be used to supply Booker’s 3,000-strong Premier convenience store franchise.
The annual results were tidy and the current trading in the first seven weeks of the new financial year were up on 2014. Customer satisfaction levels rose for the fifth year, an important factor in boosting spending and generating word-of-mouth recommendations. Net cash at £147 million was fractionally down.
Booker expects the latest acquisition to be earnings neutral in the first full year and enhancing thereafter. The shares trade on 21 times expected profits this year. Not cheap, but the yield (including special payout) is 5.1 per cent.
So long as the British economy holds up, so will the corner stores on which Booker relies.
Sales £4.8bn
Op profit £140m
MY ADVICE Buy
WHY A disciplined company that puts shareholders first
Could things at last be picking up for Shanks? The waste recycler has, for years, been promising jam tomorrow as its grapples with setback after setback. Strikes, fires and maintenance shutdowns have all plagued the business and alongside all this has been the deep recession in the Benelux construction industry, where activity at one point sank to a 60-year low. Shanks is a major player there, where it recycles construction waste to produce anything from rubble to woodchips.
In its annual results, it reported an improvement in market conditions and expressed hopes of more to come: the introduction of a Dutch tax on domestic waste taken to incinerators should help push more business towards recyclers like Shanks.
Its chief executive, Peter Dilnot, has high hopes that serious recent investment in its huge hazardous waste plant in Rotterdam will start to pay off. It specialises in cleaning up contaminated soil and ship waste water. Meanwhile, the municipal division has signed two big new 25-year contracts with Wakefield and Derby that should provide reliable profits ballast in the years ahead.
Shares, at 108p, yield 3.2 per cent. The company looks past the worst.
Revenue £601m
Profit £21.7m
MY ADVICE Buy long term
WHY Patience will pay off for this solidly run business
And finally . . .
Stefan Bomhard had a minor skid yesterday, two months into the job running Inchcape, the international car distributor. The shares dived 40.5p to 853.5p after he warned trading in one of its key markets, Singapore, had become more competitive. Bank of America Merrill Lynch estimated that the problem would shave £3 million to £4 million from profits but was a blip. Inchcape said that overall it enjoyed positive trading momentum in line with expectations in the four months to April.
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