German meal-kit company
has been downgraded to underweight by
Cazenove, over concerns the eventual easing of lockdown restrictions will bring a “quick and sharp slowdown” in customer growth.
HelloFresh, which provides subscribers with pre-portioned ingredients along with easy recipes, has benefited throughout the Covid-19 pandemic, as more people have been forced to stay at home and restaurants have closed.
Sales in the nine months to Sept. 30 more than doubled to €2.6 billion compared with the same period in 2019. In the most recent quarter, active customers grew 92% to 5 million. In a bid to capture further growth, the company announced it had paid $277 million to buy U.S. ready-to-eat meal company Factor75. The stock is up more than 156% year-to-date.
JPMorgan analysts said that with lockdown measures being extended into the latter part of this year and early 2021, the business model remained on track for now.
But they warned meaningful growth in active customers would only get harder, returning to a more cautious view on the stock given the increased likelihood of a Covid-19 vaccine, and the lifting of restrictions, in 2021.
“In contrast to other work-from-home beneficiaries, we anticipate a relatively quick and sharp slowdown in active customer growth once lockdown measures are lifted,” they said, citing the high levels of churn among customers and fewer new or reactivated customers in the future.
The investment bank’s analysts downgraded the stock from neutral to underweight with a December 2021 price target of €35. They lowered 2021/22 earnings before interest, taxes, depreciation, and amortization estimates by 15% and 14% due to lower revenues and lower margins. The stock fell 3.6% to €48.14 in early trading on Monday.
“Management has been executing extremely well over the past years, while peers have struggled and both top line/bottom line growth rates have been without doubt impressive. From here though, the debate around the investment case will likely shift toward the long-term growth rates post Covid-19 driven benefits,” said JPMorgan Cazenove’s analysts.
Separately, HelloFresh announced the acquisition of Factor75. Sales in the U.S. more than doubled to €526 million in the third quarter, while active American customers jumped by 1 million to 2.49 million. The company said the acquisition was the next step in its plan to expand into the key U.S. market.