The best investment commentator in any mainstream newspaper today is John Ficenec, Questor of the Daily Telegraph. He consistently confines himself to common sense.
Take for instance his bearish review today of Just Eat (JE.), now c. 350p. John makes this 32p net asset value where, if he will forgive me, I make it more like 20p since I write off intangibles, especially for a company such as this which has absolutely no patents or patent protection. This is a smallish point but it underlines Just Eat’s uphill climb ahead of it in the stock market.
The business supplants those very irritating fliers that keep coming through one’s letter box. This is because the potential diner visits the Just Eat website, inserts his postcode and selects his preferred cuisine. The restaurant that is selected may be able to oblige but has the option of ignoring the diner’s approach – it is not committed to any implied or suggested offer. Put another way, the diner will only be accommodated if he seeks to draw upon unused resources. Resources can be human, time slots and even basic material. Thus the restaurant is happy to pay away Just Eat’s 12% commission if the restaurant in its sole discretion always benefits.
Just Eat’s finance director reckons this 12% margin rate is going to be maintained since the competition charges 14%. I think the really interesting test is whether it would be possible to run a competitor on, say, 10% commission. As matters stand, and given Just Eat’s own figures, I bet it would.
Just Eat claims that it has first mover advantage. But this status is not economically necessary since momentum/dominance in any particular geographical location is not important. All that matters is whether eateries prefer to pay 10% instead of 12%. Astonishingly, I forecast that they will so prefer.