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Just Eat's an expensive takeaway but worth it, suggests Jefferies

Published: 00:22 04 Sep 2014 AEST

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Shares of Just Eat (LON:JE.) are already at a level that would make many investors wince but are set to go a lot higher, according to the US broker Jefferies.

It has slapped a price target of 450p on the takeway app service, sending the shares up 23p or 9%.

Relative to its peers in the digital network model sector Just Eat is arguably the most attractive stock in the universe says Jefferies, while on comparisons with US rivals the shares look cheap.

Just Eat’s margins lag rivals in other online areas such as estate agents Zoopla and Rightmove, but the broker expects it to catch up and when it does the associated adjusted EPS growth will be  “explosive”. 

Driving this as well will be growing market share in a growing online market and not just in the UK. 

While not a new concept, it has been around since 2001, the model works because it provides utility to the consumer: an easy, reliable, quick way to order a takeaway, say Jefferies. 

The many/many network model also has an underpenetrated and material market opportunity around online takeaway food

Just Eat does more than 50% of transactions on mobiles already, which again is a phenomenal number added the broker,.

By leveraging the network effect, addressing a growing market being rapidly disrupted by mobile and with a leading brand and best-in-class technology, annual earnings growth will be between 2013 to 2016 of 86%  estimates the broker.

Rating it on a similar basis to US rival GrubHub gives a price target of 450p, which represents a  punchy price to earnings ratio at 60 times.

But Jefferies says it is the growth rating (or PEG) that should be basis of any valuation and on that it is a ‘buy’.

Shares today were 292.6p valuing the group at £1.6bn and about 13% higher than Just Eat's float price in April.

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