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“We like the defensive classifieds names but believe investors should be engaging with food delivery names that near FCF generation,” they said in a client note.
Morgan Stanley anticipates that all food delivery companies will become free cash flow generative within the next 9 months, which they believe will support valuations and the sustainability of the business model. This positive outlook is expected to result in a re-rating of these companies in the market.
Along these lines, the analysts identified Deliveroo Holdings PLC (OTC:DROOF) as the Top Pick in the food delivery sector in Europe.
“Deliveroo is our new top pick, preferred over Delivery Hero, in turn preferred over Just Eat (OTC:JTKWY) and Jahez (TADAWUL:9526) (downgraded to Equal-weight today). Today we also moderate our long-term growth assumptions to reduce and de-risk the value ascribed to the terminal of our DCFs. This results in price target cuts for Just Eat, Delivery Hero and Jahez, which we believe is already captured in market expectations, given where shares trade,” they clarified.
Overall, Morgan Stanley’s analysis suggests a positive outlook for European food delivery companies, with Deliveroo being their preferred choice in the sector. They anticipate improved FCF generation and valuation support for these companies in the coming months.
