Just Eat and DS Smith

“Tobacco and mining stocks initially helped to drive the FTSE 100 up but the index quickly lost all its gains in early trading to stay flat at 7,186. Chinese stocks rallied on stimulus hopes with the SSE Composite index up 1.6%,”says Russ Mould, investment director at AJ Bell.

Just Eat

“You can tell Just Eat is a company under pressure from an activist investor judging by the language used in its full year results.

“There is a lot of talk having a clear plan, a pathway towards profitability for its Canadian business, an unrivalled marketplace and being focused on long-term returns for shareholders. It’s like you are reading a marketing textbook on the buzz words used to make your company sound good.

“Investors aren’t fooled looking at how the share price has fallen on publication of the results. Underlying earnings from the Australian arm have gone backwards on a constant currency basis, so too the international arm which comprises various locations including France and Spain.

“Operating costs have rocketed from £382.5 million in 2017 to £599.9 million; and profit has barely grown on the previous year (when you ignore a one-off impairment charge in 2017).

“Just Eat may have worded its results carefully so it can bat off any further pressure from activist investor Cat Rock Capital but the figures don’t cut the mustard. “Competition is intensifying and Just Eat cannot afford to make any mistakes in 2019 while its actions remain firmly in the spotlight.

“Talk in the latest results that it will grow margins should be seen in the wider context of the UK digital sales tax unveiled by Chancellor Philip Hammond at last November’s Budget. Analysts think Just Eat could be hit by a £10 million bill if the tax comes into force in 2020. It could put up prices to offset this tax but that would hurt restaurants and ultimately hurt customers if they have to pay more for food.

“It seems inevitable that the food ordering and delivery sector will undergo some form of consolidation among the biggest players and that Cat Rock is only going to put more pressure on Just Eat to make big changes.”

DS Smith

“The £400m sale of its plastics division to private equity may well win packaging firm DS Smith some brownie points with green campaigners given mounting concern about the environmental impact of plastic.

“However, while the company gives a nod to sustainability when revealing the rationale for selling the asset, in reality this is more about shoring up a somewhat over-extended balance sheet.

“It looks a sensible hard-nosed business decision, given the sale will only have a modestly dilutive impact on earnings in return for setting the company on the path to its targeted debt-to-earnings ratio of less than two times.

“However, it would be wrong to entirely dismiss the sustainable angle to this – just yesterday packaged goods firm Nestle announced plans to make 100% of its packaging recyclable or reusable by 2025, with a specific emphasis on avoiding plastic waste.

“A robust update on trading alongside today’s news from DS Smith may also go some way to restoring faith in the structural growth story which helped drive investor interest in the packaging space, namely the expansion in online shopping which requires goods to be packaged up for delivery.

“This theme appeared to lose some momentum late last year when the sector endured a heavy sell-off.”

These articles are for information purposes only and are not a personal recommendation or advice.