July 31, 2018 / 6:30 AM / a year ago

Just Eat hikes spending to capitalize on growing takeaway market

LONDON (Reuters) - Britain’s Just Eat (JE.L) said it would spend more on technology and delivery services to stay ahead of rivals Deliveroo and Uber Eats after strong demand for takeaway meals helped it to lift its full-year revenue forecast by 11 percent.

Shares in the FTSE 100 company, which has grown rapidly since it floated in 2014 and now operates in 12 markets, fell 4 percent however as investors focused on the higher spending plans, the second time it has raised its investment this year.

The group spooked investors in March when it first raised its investment forecast.

It said on Tuesday it would now spend 55-60 million pounds on the service, ahead of a previous sum of 50 million pounds ($66 million), reflecting its faith in its strategy as it seeks to improve its app and roll out delivery services in the UK.

It added that the higher revenues would enable it to maintain its full-year core earnings target.

“The investments we’ve made, the experience in this first half, has given us the confidence to go harder at these initiatives,” Chief Financial Officer Paul Harrison told reporters.

Founded in Denmark in 2001 by five entrepreneurs, Just Eat’s platform connects customers with local takeaway restaurants which generally provide their own delivery service, unlike competitors Deliveroo and Uber Eats.

As the market has developed however, Just Eat has trialled using its own delivery riders in Britain while Deliveroo has started to work with restaurants that deliver their own meals, increasing the potential market for both groups.

Coupled with rapid growth in Canada, a 30 percent rise in British revenue helped the group to lift its 2018 revenue forecast to between 740 to 770 million pounds, up from 660 to 700 million pounds.

In the six months to the end of June its orders rose by 30 percent to 104.4 million, helping underlying core earnings rise 12 percent to 82.7 million pounds, in line with forecasts.

Analysts were broadly positive on the earnings but noted that a number of companies were fighting for a slice of the market.

“It’s all well and good to raise full year revenue guidance – but when that comes with no change to EBITDA outlook and along with an increase in planned spending, investors will be thinking carefully now about execution on the new delivery model,” said Ameet Patel, Senior Analyst at Northern Trust Capital Markets.

“The UK food delivery market is still enjoying strong growth – but that is still also driving more and more competition.”

Reporting by Kate Holton; editing by Sarah Young/Keith Weir

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