Just Eat Shares & UK Food Inflation

With food costs rising fast across the UK, high-end retailers are expected to see a fall in footfall & revenue. Deliveries, which add margin to food costs, could be among the most affected.

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What's unique here

Food delivery firms are being pressed from both ends. Restaurants are raising prices to deal with rising costs of food and energy; meanwhile, rising interest rates make investors wary of putting money into loss-making & tech stocks.
As such, Just Eat Takeaway's shares are down over 70% since the start of the year.

Food inflation in the UK was reported in June at 5.6% over the prior month. That's the fastest growth since 2008. The more worrying aspect for food delivery firms is that even budget retailers like B&M and Tesco are seeing lower sales volumes. Interestingly, both Tesco and Sainsbury's have mentioned that people are shopping more often but buying less. Another indication that inflation is weighing on consumers.

Is there a chance of recovery?

Credit Suisse thinks so; but with a twist. Last Thursday, the company its "outperform" recommendation but cut the price target from 5000p to 3900p. The new price target is around where the stock price was at the start of the year.

Unlike rivals such as Delivery Hero, Just Eat has already seen order numbers drop. In the last report, the company acknowledged that growth for the rest of the year would be challenging. However, profitability was expected to "improve" (that is, be less negative). There is a lot of attention on the potential sale of Grubhub in the US, which could offer a large cash infusion. Although it's questionable whether any of that will be distributed to shareholders. Any price bounce from such a deal could be short-lived unless the underlying economic situation doesn't improve.

Just Eat in a tight range

Just Eat share prices hit a record low of 1220 following last week’s gap but prices remain somewhat stabilized near the bottom of the 1900-1220 range. Without breaking past the 1900 top, new lows could be registered. A rejection at the previously broken trendline support could be seen as the bottom, as this is the second time bulls pushed through the dynamic level; the first time failed at the 50-day average of 3000, which remains a critical resistance. Another major support lies at the 1000 round level.

The trendline break coupled with the CCI divergence may be seen as an early sign of accumulation. It is unlikely it manifests into a reversal without moving outside the range first. As a first step, the 1555 gap must be filled. Above there, the 50-SMA at and the 2120 swing low offer resistances before the major 3065 swing high formed in April. Getting there would increase the chances of reaching the 200-day average of 3500.

Source: Spreadex trading platform

Key takeaways

Rising food and energy prices, rising interest rates, and slack consumer spending are hurting the outlook for Just Eat and food delivery firms in general.

Credit Suisse cut the price target on Just Eat from 5000p to 3900p, but they still think the stock is worth buying.

Investors might want to focus on how much profitability the firm is expecting and most importantly on whether Grubhub can be sold in the US.