With hindsight, our initiation in Delivery Hero at €45 was not ideally timed. Post our purchase, they proceeded to announce the sale of their German business to Takeaway. com (which is also held in the strategy) but coupled this with a huge investment programme that would depress shortterm profitability. The share price subsequently slid to a low of €31. Despite the short-term disappointment, we retained the view that the food delivery platforms have very strong market positions, for the ones that have survived, and the barriers to entry in this market are significant. This will allow them to monetise their core markets once they get over the investment and consolidation hurdles. This backdrop, and the net-cash balance sheet, gave us comfort to raise our weight to over 4%, prior to the announcement of the deal in Korea to acquire their main competitor. Korea has been a major battleground in the Asian region and was a key asset for Delivery Hero to win, locally and for the region. The valuation for the deal was well received for a high-growth asset and helped to drive the share price to all-time highs, closing the year just above €70.
Whilst we chose to lock in some profits post the announcement, we are mindful that Delivery Hero hasn’t yet turned a profit in any year since its IPO. The trajectory to profitability is much clearer post this deal, but this is a business where we see considerable upside over the next 5 to 10 years. As a result, it has potential to be a core holding for some time.