Description

Introduction

“You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.” – Charlie Munger

Since the business model caught the attention of the capital markets through CV, food delivery has long divided opinion – the bulls point to their spreadsheets, believing in the superior unit economics for the scale player leading to a ‘winner takes most’ dynamic where the largest player offers the eventual promise of high margins and FCF. The bears deride the model as fundamentally unsustainable, with market share changing hands to the highest promotional bidder, limited customer loyalty or brand value, leaving long term profits a mirage for fools. Against this backdrop stands Delivery Hero – a German listed, global food delivery operator with a stretched balance sheet and under attack in its core markets. It’s an easy name to pass on. Delivery hero has been posted a few times on VIC already, with relatively limited engagement. A lot has happened in the past 12months – I would like to bring an updated and fresh perspective to the key debates and expected outcomes. With a highly credible activist in Sachem Head now on the board, the business is finally pulling the various self-help levers that were long thought to exist. Meanwhile at 13x FY24 EBITDA (despite FY24 being DHER’s first year of 4 quarter profitability), falling to ~8x street 2025 EBITDA, the market seems content to wait and see – I’ve seen enough, and believe that while the outcomes remain quite divergent for DHER, this is a grossly mispriced gamble at current prices.

Executive summary

• Delivery hero is a dominant food delivery platform, with #1 leadership positions in >90% of its markets weighted by GMV, in an industry where earnings and scale benefits tend to accrue to the dominant player
• After the days of easy CV money ended, the business pivoted to leverage its competitive position and move rapidly towards profitably
• Combining to turn €(620)m EBITDA in FY22 to €250m EBITDA in FY23, and ~€750m guided and expected in FY24 – the group’s first full year of four quarter profitability
• Group profits expected to continue to inflect upward
• FY25 street EBITDA: €1.2bn (0.7pt improvement from FY24, below the current trajectory, appears quite achievable)
• Significant runway between street’s FY25 EBITDA margin ~2.3% of GMV vs mgmt’s 2030 target of 5-8%
• Sachem Head, an activist investor with a best in class track record, joined the board in June this year
• Of the 12 campaigns publicly available on BBG which are more than 2 years in, Sachem added an average of 29% points of alpha over 2 yrs (ie 14% p.a.), far ahead of any other activist peer ranked in the top 15 by activity
• While uncertainty exists in several core markets, since Sachem joined the board the group has made material positive steps to address competition issues and monetise assets as appropriate, more specifically:
• In Korea, Baemin replaced it’s CEO, moved Baemin 1 commissions up 3% points in July and launched the ‘Baemin Club’ subscription service – the first positive proactive changes seen from Baemin in years, evidence that they are done with merely reacting to Coupang Eats’ advances
• We don’t know how the competitive dynamic will play out, but it seems likely given the changes and data that Baemin both stabilises mkt share and grows absolute profits going forward
• In Taiwan, a deal was agreed with Uber to acquire the Food Panda Taiwan operations on attractive terms: $950m cash or 0.6x GMV (triple the 0.2x group multiple)
• We don’t know whether the deal will close but as explored in the write up, of the various plausible outcomes, most seem to line up in DHER’s favour
• On group cost, first steps being made to streamline operations with the combination of the 3 brands operating on pandora tech stack
• Not expected to be hugely material in itself (est ~€20m), but important evidence that rationality is prevailing and the business continues its pivot toward profitability
• Meanwhile the classic bear arguments against DHER are easily debunked
• Profitability is kicking in here and now, this is no longer a loss making business with heroic assumptions required on future profits to cover its debt stack
• This is a collection of verified, dominant food delivery platforms globally with measurable GMV – this is not a fraudulent business
• The balance sheet is not putting the business at risk: recent refi means no further refinancings needed until 2028 at the very earliest, and the debt markets have been very happy to fund this business regardless – this will only improve in the future as the profits inflect
• In light of the above, DHER’s price makes little sense
• Any sensible multiple on FY25 EBITDA or SOTP approach gets to well north of 100% upside vs today’s decimated share price
• Even with significant impairment to their competitive position in core markets, hard to justify much fundamental downside to the current price (as the ‘market implied’ SOTP demonstrates)
• Worth noting as well that the presence of a motivated activist means the SOTP may not be theoretical: if push comes to shove and the market fails to recognise DHER’s fair value, the option is available to monetise key assets, much as they have done in Taiwan
• My expectation is that as we progress through this year and FY24 €750m EBITDA becomes progressively de-risked, the market will be forced to rerate the stock as the true earnings power moves from fiction to reality quarter by quarter
• Needless to say, how the Korean and Middle East situations evolve will also impact sentiment – continued stabilisation and a clearer view on how the dust will settle in Korea post Baemin’s transition to paid subscription model in September should bring clarity and reduce uncertainty, soothing market nerves

Business overview

• DHER has been written up 3 times on VIC
• Long; Feb-22 by TrustTheProcess1: https://valueinvestorsclub.com/idea/Delivery_Hero_AG/0580029270
• Long; Oct-23 by doctorK: https://valueinvestorsclub.com/idea/DELIVERY_HERO_AG/5430444152
• Short; Mar-24 by Shakalu: https://valueinvestorsclub.com/idea/DELIVERY_HERO_SE/9920528934

• Founded in 2008 in Berlin, Delivery Hero has grown, entirely through acquisition, to become a globally leading food delivery platform and quick commerce (grocery delivery) business
• The business operates ~13 key brands (none of which are ‘Delivery Hero’ after the German business was sold in 2018)
• The brands operate separately, but share some core tech and platform logistics
• The brands are typically market leaders
• As of 4Q23, the group held #1 leadership positions in >90% of its markets, weighted by GMV
• Geographic exposure
• ~40% of the business GMV is concentrated in S Korea, where Delivery Hero (through the ‘Woowa brothers / Baemin’ brand) has ~70% share of the market
• The rest of the business is much more fragmented, with higher exposure to the MENA region, and no presence in the US or UK
• Key financials
• 

Sachem Head involvement

• Sachem Head founder and CIO Scott Ferguson joined DHER’s board in June 2024
• About Sachem Head
• Concentrated activism fund, founded in 2012 as a spin out of Pershing Square, where Scott had previously worked for 9 years
• Track record: best in class
• I can’t find formal long term track record online
• What I have done is pulled into excel all the stored activist campaigns that BBG has recorded on the terminal (earliest is 2007)
• We can then compare the performance of each campaign, from the moment the position is disclosed by the activist, relative to the general market in each region
• Below is the results of this exercise
• Funds on the left ranked by activity (total count of campaigns)
• Middle tables shows the number of campaigns existing beyond certain timeframes, as displayed in the header bar
• Table on the far right shows the total alpha (cumulative, not annualised), over the relevant time period, up to 24months in
• Alpha defined as investment return minus major country index return (US would be S&P500 for instance)
• 
• Interpreting results, 2 important points:
• Sachem has added the most alpha over a 12m and 24m period amongst the 15 ‘most active’ activist investors
• More importantly – Sachem’s alpha generation relative to peers becomes more pronounced over time: the alpha at 24m is most impressive
• This suggest to me that while some activists may push for short term measures that aren’t in the company’s best interest long term, Sachem’s results suggest an approach which seeks to maximise outcomes across the medium to longer term
• Conclusion
• Not to suggest that everything Sachem touches tuns to gold and we should blindly follow them
• More that if you are going to have an activist on the board exerting influence, these guys look about as good as you can hope for
• Rapid positive change delivered across the group since Sachem joined – details below

Latest key developments, likely with Sachem input

• Korea
• The dynamic and outcome for DHER in Korea is of critical importance given Korea alone contributes ~40%+ of DHER’s group GMV
• The competitive situation has taken numerous twists and turns over the past 2 yrs… let me recap the key developments so we can better appreciate the current situation and outlook today
• History recap
• In March 2021, DHER closed their acquisition of dominant leader ‘Baemin’ (~80% mkt share at the time)
• With the condition they divest their existing Korean food delivery business ‘Yogiyo’ (~10% mkt share at the time)
• NB the 3^rd player in the market was Coupang Eats, ~10% mkt share at the time
• Following this acquisition in 2021, Coupang Eats (‘CE’), fresh from it’s IPO and lofty ambitions to gain share in the market, went all out on promotions to win mkt share from Baemin
• They are estimated to have spent ~$1bn on promotions in 2021
• The spending was largely ineffectual: Baemin mostly matched the promotions and CE had only moved up to ~15% share by mid to late 2021
• As we moved into 2022, the post CV tech sell off kicked in, as the market moved to punish over spending and companies tightened the purse strings
• CE pulled back on the heavy promotions, and by the end of 2022 the 80/10/10 market share split between Baemin/ CE/ Yogiyo was restored
• At this point the destination profit picture for Baemin looked quite rosy: their closest competitor has burned $1bn with no lasting dent
• The scale advantage appeared insurmountable, which with the attractive drop density unit economics (particularly true of Korea given the population density and popularity of food delivery) expected to lead to inevitable monopoly rents for Baemin
• Then came the big twist: Coupang Wow membership
• In April 2023, Coupang resumed promotions, this time offering a 10% coupon to all it’s ‘wow’ member subscribers
• Wow membership is very similar to Amazon prime, where Coupang offers subscribers unlimited free delivery on it’s e-commerce business in exchange for a monthly membership fee
• This new approach steadily gained traction for CE
• So much so that despite Baemin trying to limit the impact by partially matching the 10% discount, credit card panels show CE’s GMV share moving up from ~10% in March 2023 to ~18% in March 2024, ie almost double
• This gain came mostly at Baemin’s cost at they moved from ~80% to low 70s% share (Yogiyo also lost a couple of pts)
• Finally the latest land grab from CE came in April 2024
• In April CE switched up their wow member food delivery promotion from a 10% coupon to free delivery on batched orders
• At the time this didn’t seem like a particularly meaningful change: AoV ~KRW 30k, delivery fee ~2-3k, thus offering free delivery seemed equivalent to a 10% discount, if not slightly lower
• Rather surprisingly, the consumer reacted extremely positively to this change: across March and April 2024 CE stepped up from ~18% share to ~25%, another land grab that few expected
• At this point the outlook for Baemin was starting to draw concern
• Baemin had moved from a seemingly insurmountable mkt share lead to now 65/25/10 structure (Baemin/ CE/ Yogiyo)
• CE had for the past 12 months been the proactive player, effectively linking their promotions to their wow subscription and increasing the lock in effect for their own customers
• Importantly they appeared to be doing this on breakeven economics rather than burning money (Coupang don’t report CE segment profits but they did file CE financials to the regulator showing 2023 operating profit ~breakeven)
• Baemin was clearly on the backfoot, reactively following CE’s promotions rather than getting ahead of the problem with their own subscription or solution, and steadily bleeding share
• Speaking with DHER CEO, the impression was they were just as surprised as anyone and didn’t seem to have answers
• Latest big update in Korea: Baemin got back on the front foot (for the first time in years)
• Across July, Baemin:
• Fired their CEO (leaving for ‘personal reasons’, presumed pushed)
• Currently Baemin being temporarily run by Pieter-Jan Vandepitte, DHER group COO
• Jacked up commissions on ‘Baemin 1’ from 6.8% to 9.8% (matching CE who sit at 9.8%)
• NB Baemin 1 is their 1P business where they use their own riders, which now makes up ~40% of Baemin GMV (rapidly moving up from ~20% last year)
• Introduced ‘Baemin club’ subscription
• Currently in free trial phase, which ends 20^th August
• Post the end of August, discounted cost should be ~KRW 2k/month
• The membership includes free batched delivery, whereas without membership after August non subscribing Baemin customers will no longer have access to free delivery
• The membership cost pays for itself in single use: delivery is typically ~KRW3k / order
• The latest radical changes in Korea are important for two key reasons
• 1) They indicate Baemin is moving beyond its failing passive approach of following CE, and looking for new ways to combat CE head on
• 2) They are finally pulling material profit levers in Korea that should substantially lift group profits, simultaneously de-risking FY24 earnings guidance
• Profit impact of the changes in Korea: ~€200m+ EBITDA p.a.
• Finger math:
• 150m = 3% commission hike, minus 1% given up on lower delivery fee = 2% net hike * 40% Baemin 1 share of GMV * €19bn
• 50m = 3% commission on pick up orders
• = 200m EBITDA (annualised)
• NB this doesn’t include revenues from Baemin club subscribers – have left these out i) to be conservative, ii) to compensate for potential negative mkt share shift as the Baemin club free trial comes to an end and users need to make a decision on continuing to pay for the monthly subscription or primarily use Coupang eats going forward
• Quick discussion on Baemin’s transition to 1P (currently underway)
• In 2022 Baemin was primarily a market place business model
• Where customers order food on Baemin’s app, but Baemin wasn’t involved in delivery
• Large 3P delivery networks, primarily Vroong and Barogo, worked to employ riders who would deliver the restaurants food for Baemin and Yogiyo orders
• Interestingly, despite Coupang Eats running a 1P model and employing their own riders, they too also worked with delivery networks to supplement their rider supply network, to ensure they have enough riders to deliver food
• We believe this 3P model holds some answers as to how Coupang Eats were eventually able to attack Baemin as successfully as they did: Baemin was essentially sharing it’s scale benefits with the other players rather than retaining for itself
• Reason being: the rider networks charge Baemin, CE and Yogiyo roughly similar amounts per order delivered
• The 3P riders would often stack multiple orders across Baemin, CE and Yogiyo simultaneously
• Given the networks ultimately pay their riders for their time, and the cost per delivery for the food delivery platforms is set by the drops per hr, by charging the 3 platforms similar amounts per drop, we believe Baemin was essentially sharing it’s economics of scale with it’s competitors
• This contrasts heavily to the 1P model, where if one player has 80% share, they control the rider supply and capture most of the drop density benefits for themselves, generating a substantial margin advantage over the competition
• Baemin, presumably in recognising this, are now rapidly pivoting their business to 1P (called ‘Baemin 1’)
• In Dec 2023 the mix was ~20% Baemin 1
• Currently estimated to ~40% (based on input from the company)
• Possible end states in Korea
• Currently mkt share stabilised, Baemin with 65%-70%, CE with ~25%
• Baemin’s pivot to 1P well underway and their subscription model kicking in beyond August
• Clearly the end state is uncertain, but would think the most likely outcome is the industry settles into some sort of duopoly in Baemin’s favour
• Duopoly since Yogiyo is losing share and looks likely to eventually fail
• The evidence from food delivery subscription models in other major markets is that are typically quite effective in locking in the customer
• Whether the end state is 60/40 or 80/20 in Baemin’s favour, expect profits should be rising rather than falling from here
• Taiwan
• On 14^th May 2024 DHER announced the sale of its Taiwanese operations (under the Food Panda brand) to Uber for $950m cash
• Equating to a ~0.6x EV/GMV LTM multiple as of March 2024 (vs ~0.2x for DHER group)
• On the surface this deal optically ‘shouldn’t’ go through – Uber eats and Food Panda together form a food delivery duopoly with a combined share exceeding 80% in Taiwan
• A cynical take could be that Uber are stringing Food Panda along, attempting to damage Food Panda’s business by dragging them through a lengthy process doomed to fail…
• Here’s what DHER CEO Niklas had to say about the transaction on the dedicated call with sell side:
• Qu: “Within the release, you sort of talk about deal protections or contractual agreements to make sure that both parties are incentivized to close the deal. Can you give us some more colour on what's been agreed here? Is there a break fee? How big is it? Any colour on sort of the contractual language would be fantastic. I appreciate you probably don't want to go into detail, but anything even high level would be very helpful.”
• Ans: “Thank you, Joe. Yes, I can't go into detail here, but as we said in prior discussions or when it comes to M&A, price and value is equally important to certainty. Or I think in many cases, we even value certainty higher than price. And in this regard, we're very happy that we came to a good conclusion with Uber to create that certainty. So, I can't go into specifics, but as I said, we value certainty probably even higher than value. Yes”
• In addition to the M&A transaction, Uber also invested $300m directly into DHER, issuing new shares at €33/sh, a 30% premium to the closing price on 13^th May of €25.32
• So what is going on here – why are Uber and Food Panda pursing a transaction that would appear to have thin odds of FTC approval, and how has DHER solved for ‘certainty’ as Niklas puts it?
• Here are a few alternatives:
• 1) The powers that be have determined the deal could help further strengthen US / Taiwan ties and encourage further US investment in Taiwan, and the deal closes despite monopoly concerns
• Potentially supported by the ‘failing firm’ argument that Food Panda is currently negative FCF in Taiwan, and will be exiting the market anyway absent a sale, so the regulator either approves this monopoly with a choice of it’s own restrictions, or it gets an unregulated monopoly when FP exits anyway
• I think this is possible but unlikely based on legal counsel received so far; say 15% probability
• 2) The deal fails, but Food Panda collects a huge break fee that essentially acts as compensation to wind down their business and exit the market
• For this to make sense economically for DHER I would think the break fee would need to be ~$500m+, but these kind of break fees are i) unheard of (10% of transaction value would already be pushing it, 50% is monstrous), ii) if DHER receives a huge fee then winds down, it will likely trigger an investigate into antitrust behaviour between Uber and Food Panda which could result in an uncapped fine for Uber
• All things considered I don’t think this makes much sense either; say ~15% probability
• 3) The deal fails, Food Panda receives a large but not implausible break fee of say ~€200m, and continues operating in the country
• Here we’d expect some share attrition for Food panda over the deal process, but the €200m would likely still over compensate them for this share loss
• This is plausible, but doesn’t explain CEO’s comments on solving for deal certainty; say ~40% probability
• 4) There is some kind of structure or agreement in place which we cannot currently see
• Putting the CEO’s comments together with the investment from Uber, perhaps there is interest from Uber in some of DHER’s other markets, or an understanding to transact elsewhere should Taiwan deal not close
• It feels like there’s something we’re missing here… think this bucket also quite plausible; say ~30% probability
• Conclusion
• Highly uncertain outcomes but hard to see how DHER gets screwed here
• Ie if the worst case scenario is the deal fails, DHER ‘only’ get €200m which more than compensates for share erosion, and they continue operating in the market, they were still better off than before the deal was announced
• Optimising group cost
• 31^st July, DHER announced they are merging foodora, Yemeksepeti and Food Panda business teams
• All 3 of these brands share the same underlying ‘pandora’ tech stack
• This is primarily an HR reduction and streamlining, est ~€20m cost saving
• Main message from the company when I discussed: this is the beginning of a process
• No clear further changes but it sounds like they are evaluating and looking for other cost saving initiatives across the group

Other key debates

• Middle East threat from Meituan
• Meituan expected to launch in Riyadh, Saudi Arabia some point later this year
• There is much concern that Meituan will destroy the market economics
• My checks suggest the following
• Yes Meituan are top operators and have had huge success in China
• And likely there are efficiencies in route mapping and optimisation where Meituan is superior vs local Saudi players
• But Saudi is a different challenge
• You need local senior relationships in the region to be successful
• Both Hunger station (#1, DHER’s brand) and Jahez (#2) have these, as they were locally founded
• But Meituan, launching under Keita their intl brand will not immediately have these connections
• The consumer is less likely to take to a Chinese player vs a platform perceived as local
• Again, Hunger station and Jahez both Saudi founded and perceived to be local champions
• Meituan / Keita won’t have that
• UAE market a good precedent
• 3-4 key players, including Talabat, Deliveroo, Careem Now (Uber), Carriage etc
• With the large players enjoying attractive economics
• Point being: a healthy middle east food delivery market can support 3 players profitably, it’s not a foregone conclusion that Meituan’s introduction wipes out all profits
• Base case expectations
• Meituan launches, they make a splash with heavy promotions much as they did in Hong Kong
• After 1 yr they likely grow to become no.3 player in the region, killing most of the tail players in the market
• The market stabilises as a three player market, with Hunger station still the larger player
• Structural GMV growth of ~13% YoY they are currently experiencing continues, leading to stable or higher profits from here
• Spain / Glovo issues
• Situation looks gloomy, but Spain is ~5% group GMV – losing Spain doesn’t materially impact NPV
• Glovo provision for rider classification
• €277m on B/S, €264-430 off B/S
• Base case expect to pay on B.S. €277m fine (~4% of mkt cap but already provisioned and flagged)
• Possibly have to restructure the business to classify riders as employees…
• Anti-trust fine
• Provision: ~€400m (20% of 2019-2022 revenue) (~7% of mkt cap, but flagged and now provisioned)
• Most likely paid in 2H25 or 2026
• Clearly the question is – how many more negative ‘surprises’ can there be?
• We don’t know, but I would add you can delete the Spain business, pay the fines and still come out vastly ahead of the current group mkt cap with conservative assumptions everywhere else

Addressing the bear cases

• Unit economics a fantasy – won’t ever make money
• Usually this argument is made on the basis of limited delivery platform brand value or customer loyalty, meaning customers chase promotions, forcing the industry into a race to the bottom
• To this I would make 3 points
• 1) DHER is cheap enough on current numbers to justify owning it – heroic forward assumption based on strong unit economics are no longer required
• 2) Cohort retention data consistently shows that customer behaviour is relatively sticky on food delivery apps and there isn’t much chopping and changing once a habit is built
• This is particularly true once subscription model in place and the effective sunk cost lock in that provides
• 3) The unit economics really ought to be quite favourable (we don’t need to believe this, but I do believe it to be true)
• In the case of 1P food delivery, the major cost to the platform is paying their riders
• And riders are ultimately compensated for their time
• For the scale player, the route density should be such that each rider can take 3-5 orders per trip, since with increased scale comes the increased likelihood that more customers from a given area are ordering food from restaurants within reach of each other
• As the orders per rider trip increases, this reduces the platform cost per drop, since the rider is dropping more orders per hr whereas he’s ultimately being paid for his time
• NB this stands in contract to rideshare, where each ride only picks up one customer at a time, a limit on route density benefits which food delivery theoretically isn’t restricted by
• ‘Another German fraud’
• Given the rich history of German frauds, combined with the messy accounting and noisy mgmt adjustments, some remain sceptical on the authencity of the business
• The difference here is we know the operating food delivery platforms really exist and transact in the GMV say they do
• Not just from credit card data but also from visiting countries / using the service
• A trip to Soeul will immediately show you how prevalent Baemin and food delivery is in the country
• This would be a very odd fraud indeed, were DHER mgmt to have somehow pieced together legitimate dominant and valuable businesses, and somehow snatched defeat from the jaws of victory by conspiring to commit unnecessary fraud over the top of them
• Liquidity position
• This is probably the biggest market concern, and the one I most often hear regurgitated by sell side as the justification for the weak market performance
• The reality is that even using extremely draconian assumptions, given the refinancing earlier this year, DHER’s cash lasts into 2028 without any further refi (and the market has repeatedly demonstrated an appetite for refis that will only increase as the business inflects to profitability)
• When I say draconian, that’s assuming worst case Glovo related fines are all paid in FY25, then no improvement in the underlying FCF trajectory thereafter (which makes little sense)
• The company themselves claim they will easily cover all outstanding debt maturities with organic cash generation… if you’re less optimistic you might expect them to need to refi the ’29 TLB, but they just rolled it earlier this year – doing so again from a stronger profitability position in a few years’ time should not be a problem
• Key point: while the equity market apparently gets the jitters from DHER’s B.S., the debt market is more than happy to lend and extent here
• 

How does this all translate to earnings: a business going through an inflection

• As much as I dislike using EBITDA, it’s the only divisional profit disclosure we get and the metric that street profit estimates anchor off, so I use below to calibrate the discussion
• Here are the divisional EBITDA margins and change YoY in EBITDA margin over the past 5 yrs
• Notice the group improved profit margins by 1.5pts in FY22 and then 2.0pts in FY23
• This was achieved by pulling hard on the various profit leavers available, including
• Reducing discounting in non-core markets
• Increasing advertising products and revenues in their platforms (ranked search, banner promotions of paying restaurants in the app etc)
• Increasing order stacking (more orders per rider, improving the cost per drop economics)
• 
• The question becomes, what margin improvement is a sensible rate to expect the group to continue improving
• The street have exactly matched the mid-point of mgmt’s FY24 EBITDA guidance of €725-775m
• So how demanding does guidance look – now with the Korea business model changes: not very
• Since the guidance requires the group to improve by 1ppt across FY24
• If we expected Korea profits to be roughly flat YoY in FY24, as was likely before they made the changes in July, the guidance was starting to look tight
• On the basis that lifting group profits 1pts without help from Korea (~40% of GMV) would require lifting margin in all markets outside Korea by almost 2ppts
• As we know, this was achieved last year but is right at the limit of what the business can realistically achieve if all levers are being pulled
• Now with the changes to Korea, roughly lifting Korea profits ~€200m p.a., say ~100m in 2H24, the guidance looks a lot more doable
• By the same logic, street FY25 improvement of 0.7pts also looks conservative, well inside the recent trajectory and imminently achievable

Valuation

• Delivery Hero is fast approaching the point where we need stop trying to look around the corner to what our models say the business could earn, as it’s inflecting earnings are making it look very cheap on current and near term numbers
• Using street’s €750m in FY24 and €1.2bn in FY25 gets to EV/EBITDA of only 13x and 9x respectively
• For a business which only broke EBITDA profitable in 2Q23, barely 1 year ago
• Needless to say, it’s not typical to find tech platforms at 13x/9x 0FY/+1FY EBITDA, 1 year into being profitable
• Even the FY25 street EBITDA is still only 2.3% margin over GMV
• Mgmt target 5-8% by 2030
• Achieving 5% on FY25 street GMV gets to €2.6bn EBITDA, equating to 3.8x EV/EBITDA
• Who cares about EBITDA, what about FCF
• Business only currently moving into positive free cash flow territory this year, so FY24 multiples not meaningful
• Despite that, expect on a clean basis (excluding Glovo related cash fines), business should do ~€350m FCF in FY25, ~€600m FCFE, leaving both P/FCFE and EV/FCF around about ~15x…
• Again for a dominant global tech platform in it’s first real year of positive FCFE
• Alternatively let’s look at SOTP
• Fairly conservative leaning base case assumptions lead to a value ~140% above current share price
• Assumptions required to justify the current price on a SOTP basis look implausibly bleak
• 
• Putting it together into an expected value skew
• Using somewhat arbitrary but low leaning multiples for a business 12 months into breaking profitable…
• EV: ~€52/sh; +140%
• Which matches the rough conservative leaning SOTP x-check
• Just as importantly, any kind of multiple of FY24 EBITDA, even with the Taiwan sale falling through, gets you fairly close to current price – hard to see much fundamental downside from here
• 

Catalyst

FY24 EBITDA of ~€750m becoming de-risked as we move through the year and see the necessary quarterly improvement to get there

Korea competitive dynamics continuing to stabilise and settle, particularly post August 20^th as Baemin free trial of their new subscription membership program ends

Clarity around Taiwan sale closure

Clarity around Glovo fines / future of Glovo business in Spain