Top UK Stocks to Watch: Just Eat sacrifices margin for growth
Joshua Warner January 13, 2021 9:37 AM
Just Eat shares slide as it prioritises growth over profits, Persimmon sells fewer houses at higher prices, Marshalls reinstates dividends after a strong finish to 2020, and Spectris says it will hit the top end of expectations.
Top News: Just Eat shares fall as it prioritises growth over profits
Just Eat Takeaway shares took a dive this morning after the company said it would prioritise growth over profitability to capitalise on the strong momentum that it has gathered this year.
It said sales growth accelerated for the third consecutive quarter in the final quarter of 2020, putting it on course to post a strong set of annual results.
The company said demand for both its Marketplace service, where it takes orders through its app, and its Delivery business, where it also delivers food on behalf of restaurants, had improved in the period and that it had ‘strengthened its market leading positions by significantly investing in its most important countries.’
Its newer Delivery business in the UK has proven particularly popular as more restaurants are forced to offer takeaways in light of lockdown, with sales up a staggering 387% in the fourth quarter. It said it soon expects its Delivery business alone to overtake the third-biggest competitor in the industry.
Elsewhere, it said it booked 12 million more orders in Germany and 4 million more in the Netherlands compared to the year before, while orders in the rest of the world was up 47%, with particular strong growth in Australia.
As a result, Just Eat Takeaway is expecting annual revenue to grow by more than 50% in 2020. It said its adjusted Ebitda margin will be around 10% after taking the significant investment into its Delivery business into account.
That is a staggering drop from the 42% margin posted in the first half of 2020 and investors were further spooked as the company said it would prioritise market share growth over profitability.
In other news, Just Eat Takeaway said it expects to complete its acquisition of Grubhub during the first half of 2021 after securing all the necessary approvals and clearances. Just Eat and Takeaway.com merged last year as the sector seeks to consolidate and scale-up in the fast-growing market.
Just Eat Takeaway shares were down 4.7% in early trade at 8669.
Just Eat Takeaway share price: technical analysis
Just Eat has been trading more or less range round over the past 7 months capped on the upside by 9200 and lower band by 7500.
Yesterday the price failed to break above 9200 and today’s slump has brough Just Eat’s share price to around the middle of the channel, whilst finding support from its 100 sma at 8500. A move beyond here lacks conviction for now.
A break through the 100 sma could see selling pressure pick up and the bears test the 50 sma at 8240. Beyond here horizontal support at 7830 and then the lower band of the channel at 7500 come into play.
On the upside, immediate resistance can be seen at 8750, before 9000 round figure and 9250 the upper band of the channel.
FTSE 100 news
Below is a guide to the top news from FTSE 100 shares today.
Persimmon sells fewer houses at higher prices
Persimmon said revenue declined in 2020 after a rise in house prices failed to counter lower sales.
The housebuilder said its average selling price was up 7% in the year at £230,500 but that it only sold 13,575 homes, down from 15,855 the year before. Persimmon said that, although the housing market has fared well during the pandemic, it had brought ‘challenges’ including delays in completing sales. The result was a fall in annual revenue to £3.33 billion from £3.65 billion in 2019.
Persimmon said it mitigated some of the disruption caused by the initial lockdown last year with a stronger performance in the second half. Average weekly sales in the second half were up 39% from the same period the year before, boosted by the stamp relief duty that is due to expire at the end of March.
‘The group's average weekly sales rate during the final quarter of the year trended towards more normalised levels from the elevated rate seen over the summer months, the latter having been supported by the group's prior investment in stock and a degree of pent up demand. As a result, the group's sales levels over more recent weeks reflect lower active outlet numbers and some constraints on stock availability, together with delays to reservations while first time buyers awaited the opening of the new Help to Buy scheme on 16 December 2020,’ Persimmon said.
Persimmon will release its annual results on March 3.
Persimmon shares were down 2.2% in early trade at 2721.5.
FTSE 250 news
Below is a guide to the top news from the FTSE 250 today.
Marshalls reinstates dividend after strong finish to 2020
Marshalls has decided to reintroduce dividend payments as revenue growth continues to accelerate.
The company, which installs block and concrete paving, said growth has progressively improved thanks to demand from people looking to improve their homes. Sales in the domestic market rose 9% in the second-half of 2020. Sales to the public and commercial sectors were down 6% but had returned to ‘more normal levels’ compared to the 26% drop seen in the first half when the initial lockdown disrupted trade.
Still, revenue for the year is expected to fall to £469 million from £542 million in 2019.
But, as momentum has picked up in the latter half of the year, Marshalls said it was increasingly confident about its prospects in 2021, especially as it looks to start building a new block plant in St Ives. It has also repaid all government-support it received last year and said it starts the year with net debt of £27 million, which it described as ‘significantly better than expected’.
As a result, Marshalls said it was reinstating the dividend by paying a final dividend for 2020. It will release its annual results on March 11.
‘Trading continues to improve and order books remain strong. The board anticipates out-turns for 2020 and 2021 modestly above current expectations. We continue to monitor closely any risk to demand due to the worsening COVID situation in Q1. We are taking appropriate and timely measures to best mitigate any impact,’ Marshalls said.
Marshalls shares were down 2% in early trade at 701.3.
Big Yellow Group maintains momentum
Self-storage specialist Big Yellow Group said it has maintained the strong momentum since releasing its first half results as it posted strong growth across the board.
The company said fourth-quarter revenue rose 7.4% to £34.7 million. Annual revenue grew 4% to £100.5 million.
‘The trading momentum we referred to when announcing our half year results has continued through the quarter, and this has been our best occupancy performance in the third quarter for many years. The main driver of this occupancy performance has been our domestic customer base, although business demand has also continued to improve,’ said CEO James Gibson.
‘We are now just over a week into a third lockdown, albeit unlike the first lockdown, industry, construction and the housing and property markets remain open. Although it is early in the fourth quarter, we are continuing to see growth in year-on-year prospects and occupancy, however as we have always stated, our visibility of future demand is limited to two to four weeks,’ he added.
Big Yellow Group shares were up 1.8% in early trade at 1092.5.
Howdens raises guidance as trading improves
Howden Joinery Group said it now expects to deliver pretax profit of £185 million in 2020 after better-than-expected trading in December.
On December 9, the company said profits would be around 10% higher than the consensus range at the time of £123 million to £152 million.
In 2019, it delivered a pretax profit of £261 million.
Howdens will release preliminary results for the year on February 25.
Howden Joinery shares were up 1.2% in early trade at 703.8.
PageGroup stages steady recovery
PageGroup said its results improved on a monthly basis during the final quarter of 2020, building on the sequential improvement that has been seen since May.
The recruitment services provider said gross profit in the final quarter of 2020 fell 20.2%, improving from the 26% decline posted in the third quarter. It said profit in December was down just 18.2%, signalling things have improved as it entered 2021.
For the full year, PageGroup’s gross profit fell 28.2% to £609.7 million from £855.5 million in 2019. It said it could not provide guidance for 2021 due to the current uncertainty in the market.
‘As we enter 2021, there remains a high degree of global macro-economic uncertainty in many of our markets, as COVID-19 remains a significant global issue and lockdowns have returned in a number of the group's markets. However, in the UK we are encouraged that the Brexit deal has provided a degree of clarity,’ said CEO Steve Ingham.
‘We remain confident in our strategy of maintaining our platform and continuing to carefully invest in headcount, as well as continuing to roll-out new technology and innovation. We are the clear leader in many of our markets, with a highly experienced senior management team, which, we believe, positions us well to take advantage of opportunities to grow and improve our business. We have maintained our focus on our long-term vision for the group to drive progress towards our strategic goals,’ he added.
PageGroup shares were down 1.5% in early trade at 452.7.
Spectris to hit top end of expectations
Spectris said it expects to deliver annual adjusted operating profit toward the top end of market expectations in 2020.
The company, which specialises in precision measurement, said like-for-like sales were down 7% in the final three months of the year but ahead of expectations, particularly in December. It expects LfLs to fall 11% in the year as a whole.
Total sales fell to £1.33 billion from £1.63 billion, reflecting the drop in demand and the impact of disposing certain businesses. That is better than previously expected and Spectris said, combined with strong cost controls, this will allow it to deliver an adjusted operating profit toward the top end of the consensus range of £150 million to £171 million. That would compare to the £258.1 million profit reported in 2019.
Spectris will release annual results on February 25.
Spectris shares were down 1.5% at 2950.5 in early trade.
QinetiQ stays on track
QinetiQ said it expects to deliver its fifth consecutive year of organic growth in the current financial year as it remains on track to meet expectations.
The science and engineering business reiterated its guidance issued in its interim results in November. It said the EMEA Services division had seen a ‘very limited impact’ from COVID-19 thanks to long-term contracts and because it is providing critical defence services to governments. The Global Products unit has continued to grow revenue in the latest quarter after being disrupted earlier in 2020.
‘We adopted a three phase approach to working through the pandemic and our "renewal phase", the last of the three phases, is progressing well with a renewed ambition and evolved strategy to accelerate sustainable growth,’ the company said.
QinetiQ shares were down 1.3% at 317.7 in early trade.
William Hill posts strong end to 2020 ahead of takeover
William Hill said net revenue fell 16% in 2020 to £1.32 billion, as strong online and international growth failed to offset the drop in activity in its physical outlets during lockdown.
The bookmaker said things had improved as the year progressed, posting net revenue growth of 9% in the final quarter, with sports-related revenue also experiencing strong growth as the sports calendar continues.
People have been encouraged to switch online as bookmakers remain closed during lockdown. Net revenue from retail stores was down 30% in 2020 on a like-for-like basis while online sales in the UK grew by 5%. Online operations abroad performed much better, rising 12%.
But it was the US that put in the strongest performance of the year with net revenue up 32% year-on-year, once again driven by online. It said it had managed to absorb customers left stranded after physical casinos had to close and as people looked for online games as sports betting was affected by the shifts in schedules during the pandemic.
William Hill said it is awaiting just one more clearance from US authorities before it can complete its takeover by Caesars that was agreed in September. It said the deal could be completed as early as March but more likely to be early in the second quarter.
William Hill shares were flat at 269.9 in early trade.
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