Jefferies Starts GrubHub Inc. (GRUB) at Hold; Offers Transparency to Complex Business
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Jefferies starts Grubhub (NYSE: GRUB) with a Hold rating and $43 price target.
Analyst David Reynolds commented today,
With the move into RDS and a distinct lack of transparency, this initiation breaks through the complexity. We see three key business segments, 'Corporate', 'NY Consumer' and conclude the move into RDS makes sense when the third, 'US Consumer', ex-delivery is growing at only c.10% 15/18 CAGR. Ultimately, the US market opportunity seems less attractive than the UK.
GRUB’s financial disclosure is in many ways reasonable, but in comparison with its key listed peer, the UK’s Just Eat (JE), it is poor. One significant difference is that JE splits the income statement into four business segments, advancing investor understanding of the equity thesis, GRUB does not, hampering understanding.
JE, a relevant peer, but very different. Online marketplaces not so common in the US; JE one of a number that are listed in the UK. Aside from the reality that the UK online takeaway food market is demonstrably more attractive than the US, as we see in our consumer survey, JE is a little different. JE addresses 12 geographies, has invested more aggressively in both capex and M&A, maintains higher growth and drives margin accretion hard.
RDS investment, reviving the US Consumer. And further, the deteriorating revenue growth profile within US Consumer (ex RDS) catalysing the decision to invest into RDS. And while the majority of growth is acquired, we see the RDS businesses delivering a +91% 15/18 revenue CAGR, albeit not passing through breakeven until 2018 on our numbers.
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