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Online food delivery demand has soared as more countries impose coronavirus lockdowns but, while there are problems ahead, the pandemic will bring longer-term benefits for the sector, UBS said on Friday.
With millions stuck indoors and restaurants around the world forced to close, people have turned to takeaways — making use of online providers, including Uber Eats UBER, -3.51%, Grubhub GRUB, +1.81% and Deliveroo.
However, UBS analyst Hubert Jeaneau said two stocks stood out — German-based multinational Delivery Hero DHER, +0.64% and the recently merged food delivery giant Just Eat Takeaway JET, +4.33%.
More than half of U.S. states have imposed lockdown measures, with restaurants closed but many still able to provide takeout. Many European countries, including the U.K., have taken the same steps, leading to a surge in demand for takeaway meals. But as some countries have implemented curfews and other measures preventing deliveries, short-term growth could be held back, UBS said.
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Jeaneau, who said demand signals were strong, also predicted near-term headwinds in the shape of supply disruptions but long-term benefits as thousands of restaurants and new customers sign up to online platforms.
“Looking at second order impacts, evidence suggests takeaway meal demand levels remain stable during recessions…near-term we are more cautious on revenue growth, but remain bullish medium-term as consumer/restaurant adoption is set to increase,” Jeaneau said.
UBS retained buy ratings on Just Eat Takeaway, with its exposure to restaurants and low exposure to the gig economy, and Delivery Hero — a market leader moving into the grocery space.
Delivery Hero has seen positive trends in countries first hit by coronavirus, including South Korea and other Asian countries, but could find the next few months tougher, Jeaneau said in a note.
“While the first quarter is likely to be robust, we take a more cautious stance for the second quarter, as the situation is evolving rapidly and some geographies including Kuwait and Saudi Arabia seem not to be allowed meal deliveries within curfew hours,” he added.
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However, Delivery Hero has “significant leeway” to invest, consistently outperforms guidance and should be helped by its early efforts to expand into grocery delivery, he said, reducing his target price from €95 to €94.
Just Eat Takeaway’s target price was increased from £91 to £97 by UBS. Jeaneau said that the company would see a limited impact from the virus outbreak and has positive free cash flow generation. He added that an initial decision by the U.K.’s competition watchdog over the proposed merger, expected in May, will also boost shares.
