12th Apr 2024 14:37
(Alliance News) - Just Eat Takeaway.com stands to benefit significantly if New York City passes a new bill seeking to raise fee caps on food delivery firms, analysts predicted.
Shares in Just Eat Takeaway.com were up 5.1% at EUR15.15 on Friday afternoon in Amsterdam, and up 4.8% at 1,293.00 pence in London.
UBS maintained a 'buy' recommendation for Just Eat Takeaway.com on Friday, with a target of 1,234p. Shore also maintained its 'buy' rating with a 1,262p target.
Late on Thursday, members of the New York City council introduced an amendment bill intended to raise limits on the fees that third party delivery companies, like Just Eat Takeaway, can charge restaurants to use their services.
The current cap, UBS analysts explained, is 15% for delivery, 3% for credit card processing, and 5% for other fees. The amendment bill, which UBS said had three sponsors as of Thursday, would increase the limit on other fees to 25% subject to certain conditions.
"Fee caps were originally introduced in response to the pandemic struggles limiting the fees food delivery platforms could charge restaurants, but still remain in place currently," UBS added.
The analysts continued: "It's difficult to determine the exact impact of these new criteria but our initial view is that they are likely workable for the platform.
UBS said lifting the caps "could lead to materially improved...profitability" for Grubhub, Just Eat Takeaway's US business which it acquired in 2021 only to announce plans to sell in April 2022.
"NYC fee caps are key to Grubhub's profitability given their heavy exposure to the NYC market," UBS said, adding: "However, the sale has likely been hindered by not only the slowdown in [mergers and acquisitions] activity and declining market share, but due to the impact of fee caps on profitability/[free cash flow] generation, in our view."
The analysts further commented that Grubhub "is generally ascribed negligible value by the majority of investors with it," and that "Despite the path to fee cap removals remaining unknown (both in duration and ultimate success), we do see this as a clear positive for [Just Eat] that is not, in our view, priced in."
Shore Capital was similarly pleased by the news, saying on Friday: "In our view, the amended bill represents an incremental positive risk for NYC delivery players proposing a lifting of the ceiling on what they are able to charge customers.
"NYC delivery rider minimum wage laws were introduced in Q4 last year which has put pressure on profitability in the region and so this evolution will likely be incrementally positive to the stock's sentiment," Shore added.
The analysts continued: "Though the news represents just the first step in the legal process, the bill will require 26 cosponsors to meet the required vote count threshold, we believe withstanding a full removal of fee caps, even the proposed lifting of just 20 [percentage points] would be very helpful in getting Grubhub to [free cash flow] breakeven and begin rebuilding confidence in the Grubhub disposal story."
By Emma Curzon, Alliance News reporter
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