Just Eat surges 10% on LSE debut

Shares in Just Eat soared as much as 10% on its market debut in London, giving the online takeaway service a market valuation of £1.47 billion and allowing the pundits to invoke every possible pun around the phrase 'dining out'.

This is well above the top of the range suggested by the company in January and puts it on an enterprise value at more than 100 times its earnings before interest, tax, depreciation and amortisation, and more than 15 times sales. The obvious comparison is Asos, which is trading at a multiple of around 75 and is typically considered overvalued despite its strong track record.

Back in January founder David Buttress thought the company would list in April or May at a valuation in the range of £700-£900 million. Even that would have made it one of the most pricy tech stocks listed in London.

Not surprisingly the company went to market early while investor sentiment still looks as though it supports such pricing, and ahead notably of US competitor GrubHub which is preparing to list in New York at a $2 billion (£1.21 billion) valuation. How many investors stopped to consider why the full prospectus did not appear until after the shares were already trading.

High-growth companies

And let's not forget what this business actually is - an online service to order takeaway food from local restaurants. Odd, then, that it should be treated as a tech firm and somewhat laughably the first-ever float on the LSE's "high growth segment", a special section of the exchange aimed at encouraging high-growth companies to list.

Like GrubHub and Berlin-based rival Delivery Hero, Just Eat relies on a combination of listing charges for restaurants and commissions from orders, essentially making all three firms just delivery companies enjoying a first-mover advantage. Somewhat archaically, restaurants that pay the £699 to sign up to Just Eat must take possession of a physical hardware terminal that must be used to process orders. Sound hi-tech to you?

Customers then place orders for food to be delivered, with the orders coming via the terminal and Just Eat takes commission of 10 to 12% on each order. It simply connects the customer with the venue: there is certainly no unique technology. Indeed, there is more original IT in many a mainstream firm, most obviously the supermarkets' online delivery and price-matching services.

Just Eat further believes that its largest markets - the UK, Denmark, France, Canada, Ireland and Spain - are attractive markets for takeaway food, as they are characterised by factors such as long cold winters with diminished daylight hours, and highly-fragmented markets, but consumers are also increasingly aware of the perils of unhealthy eating.