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Sohn: Beeneet Kothari of Tekne Capital Management picks Delivery Hero

Jemima Whyte
AFR
 • 
Dec 3, 2021

It’s an “age of instant gratification”, according to Tekne Capital Management’s Beeneet Kothari, and he is picking restaurant delivery group Delivery Hero to ride the innovation in last-mile logistics in the $US1 trillion takeaway food sector.

In a space where scale matters, Delivery Hero has already made big inroads. It operates in more than 50 countries – where it is No. 1 in 95 per cent of its markets, and four times larger than the second-largest player in 75 per cent of its markets.

It delivers 260 million orders a month, and this year is expected to grow 65 per cent after growing more than 70 per cent the previous year after being boosted by COVID-19 lockdowns.

Delivery Hero is also founder-led by Niklas Ostberg. So, what’s the opportunity? Delivery Hero is trading at a valuation discount to its peers including DoorDash and China delivery service Meituan.

Kothari says that’s because the company is still in the final stages of a four-year investment plan, after changing its model some four years ago. “Other companies have gone through a similar transition but very few in the public markets. The ones that come to mind are some of the greatest companies of all time. For example, Netflix did a business transition from licence content to own content.”

Four years ago, Delivery Hero moved from third-party players to becoming first party logistics players. It’s been successful, Kothari says, because volumes have gone up 10-fold, and the underlying profitability of the business is improving. But losses have been large.

“The underlying driver of the discount is the losses that Delivery Hero has accrued and we believe we are at the end of the investment cycle and [the] business will generate profit next year,” he says.

How confident is he? Kothari thinks the stock is likely to at least double from here, or potentially triple because of the valuation discount to its peers.

This article was originally posted by The AFR here.

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