Delivery Hero SE

By Mihir Gupta and Karan Pathak (University College London)


Stock Name: Delivery Hero

Ticker: ETR:DHER

Sector: Food Delivery

CMP: EUR 98.28 (as on 05/10/2020)

Recommendation:

Sell/ Short

Fresh Buyers - Wait & Buy on Dip

Timeline: 1 - 1.5 weeks

Target: EUR 94.5



Company Overview

  • Headquartered in Berlin, Delivery Hero is an online food delivery company founded in 2011 that aims to provide a seamless customer experience of on-demand food purchases.

  • Its main methods of revenue generation include commissions on orders received for restaurants on its platform as well as fees it charges for providing its own-delivery services to food service providers that cannot deliver themselves.

  • It employs 27,000 employees across the globe in 44 countries segmented into Europe, Americas, Asia and MENA (Middle East and North Africa).

  • Orders increased 93% year-on-year to 519 million; Gross Merchandise Volume (the total monetary value of sales on the platform) rose 63% year-on-year to €5.1bn; Total Segment Revenue (Revenues before accounting for discounts from vouchers) rose 94% year-on-year to €1.1bn.

  • The online grocery market is highly competitive worldwide and requires not only internal but also external growth by its incumbents; hence, the Delivery Hero SE Group consists of 133 companies worldwide after its acquisition during its near-decade-long existence.



Strategy Profile


The core strategy profile of the company stems from the overarching vision of the company to provide a holistic ordering service. It is centred around the following aspects:

  1. Expanded Restaurant Coverage: With around 500,000 different restaurants active across the company’s platforms, Delivery Hero is able to cater to a variety of individual preferences across multiple cuisine types. Moreover, what adds quality to their overall experience is the ability to function on a hybrid delivery platform - i.e. having their own delivery capabilities as well as operating in the market place directly. Finally, the diversified set of capabilities is best illustrated by the fact that no single brand exceeds 4.6% of the overall orders that the company receives.

  2. Fast and Reliable Delivery Services: Delivery Hero has developed the unique internal capability to manage all the steps constituting the supply chain process. This includes transmission, delivery and post-order services involved in the ‘food delivery life cycle.’ Additionally, in order to provide its customers with an improved delivery service, the company offers its vendors the opportunity to attain its built on proprietary technology solutions - ‘Hurrier’ that decreased delivery time to under 28 minutes in Q4 2019. Moreover, as of Q4 2019, 45% of all the orders were delivered with the help of this solution.

  3. Improved Product and Technology experience: Delivery Hero’s simplification and personalization agenda is driven by their effort to improve product and technology. As of December 2019, approximately 22 billion points had been processed by Delivery Hero.

  4. Addition of High-Frequency Products: In 2019, the company focused on expanding their product offering and attaining the status of a ‘third generation’ company. Resultantly, developments in proprietary technology allowed them to expand across 29 countries with multi-vertical offerings. Given the initial success they witnessed in this venture, they decided to invest in Dmart and by the end of 2019 they were present in Singapore, Taiwan, Qatar, UAE, Turkey etc.



Core M&A Activity


Recent Highlights


At the start of the year, the company acquired Woowa Brothers in South Korea, the country’s largest online food platform, to further establish its footprint in the ever-increasing Asian market for online food delivery. Seoul’s population density and restaurant population are at par with New York, offering a huge consumer base for Delivery Hero. By using their expertise and Woowa’s distribution network, they aim to tap this underpenetrated market.


Historic Highlights

Lieferheld (Germany), OnlinePizza (Sweden), PizzaPortal (Poland), Pizza-Online (Finland), PedidosYa, Clickdelivery (LatinAmerica), Pizza.de (Germany), Baedaltong (Korea), FoodPanda and Foodora are among a number of acquisitions made by the company. As stated above, the online food platform market is brutally competitive. These acquisitions symbolise Delivery Hero’s aggressive focus on external growth to supplement its internal growth. Moreover, Delivery Hero acquired Hungry House in the UK in 2013 to gain access to its domestic market; it subsequently sold the branch in 2016 to Just Eat.



Index Outlook


Index: DAX 30 ( 12,689.04 as on 02/10/2020)


Support and Resistance Levels


Graph 1: Support and Resistance analysis for DAX 30 (Investing.com as on 02/10/2020)


As on 2nd October 2020, DAX 30 closed at 12,689.04, after having dropped 41.73 points since the opening of the trading day. Although the initial phase of the recovery for the index from the COVID-19 crash was V-shaped, ever since 27th July 2020 the index has breached its increasing trend line a couple of times. Part of which may be attributed to factors such as the dependency of the index on the performance of other major European countries; the fiscal stimulus deadlock between the ‘Frugal-Four’ and other European nations and the varied spurts in which the virus has transmissioned into the Eurozone. Moving forward, we believe that the increasing number of COVID-19 cases and the possibility of a ‘Wave-2’ may impede the bullish sentiment, because of which we have a bearish outlook for the index in the short-medium term.


As per our analysis, we believe that the index is trading close to its immediate support of 12,550 and the immediate resistance level for the index is at 12,900 (as shown by the yellow rectangles in Graph 1). Furthermore, some of the other crucial levels in addition to the immediate support and resistance levels are 13,090 and 13,360 on the upside (as shown by the orange and blue rectangles on the upside respectively in Graph 1) and 12,450 and 12,100 on the downside (as shown by the orange and blue rectangles on the downside respectively in Graph 1).


Graph 2: Fibonacci Levels for DAX 30 (Investing.com as on 03/10/2020)*


The strength of these levels is further guaranteed by plotting the Fibonacci levels for the index on an upside basis (as shown in Graph 2). The strength of the 12,900 level is backed by the fact that indeed 12,924 is a strong 0.236 retracement level on the upside. Moreover, on the downside the strength of both the 12,450 level as well as the 12,100 level is backed by the fact that both 12,493 and 12,145 are the 0.382 and 0.5 retracement levels respectively.

*This part of the analysis was revisited on 03-10-2020 because of which the graph captured is dated for 03-10-2020. However, because the overall analysis was conducted at the close of markets on 02-10-2020, the overall index images remain unchanged and hence in sync.


Trend and Pattern Analysis


Graph 3: Trend Analysis and Double Bottom Breakdown for DAX 30 (Investing.com as on 02/10/2020)


We would like to begin this section by elaborating upon the multi-trendline breach that was mentioned earlier. As it can be seen in Graph 3, the index had been maintaining its higher highs and higher lows formation complemented with an increasing trendline (black line in Graph 3) to a great extent until it was breached by a series of selling sessions post 24th July 2020.


Moving although this trendline was breached, the index still managed to maintain an increasing trend line. However, the slope of the new trendline was much flatter (blue line in Graph 3) as compared to the previous one, highlighting increased pressure from the bearish end and a loss in momentum.


Nonetheless, the bulls could not keep up with this selling pressure for long which resulted in a second breach of an increasing trendline on 21st September 2020 with the index losing close to 400 points in a single trading session. This breakdown was complemented with a double top formation breakdown, making the selloff particularly detrimental.

Graph 4: Inverted flag and False Ascending Triangle breakdown for DAX 30 (Investing.com as on 02/10/2020)


Furthermore, we believe that there are two key points that must be kept in mind from a candlestick pattern-formation perspective in the coming sessions:

  1. Firstly, it is the point about heightened uncertainty due to increased volatility in the market. Unfortunately, because of this we are witnessing a number of false bullish signals induce themselves into index movements. This point is best supported by the false ascending triangle breakdown as shown in Graph 4.

  2. Second, the index has formed an inverted flag pattern which furthers a bearish outlook. As shown in Graph 4, the pole of the flag was supported by strong volumes and the consolidation stage that followed has had comparatively weak volumes. Hence, we may witness a continuation of this pattern in case the immediate support is broken.


Bollinger Band Analysis


Graph 5: Bollinger Band analysis for DAX 30 (Investing.com as on 02/10/2020)


Bollinger Band analysis has been a vital part of our analysis strategy, primarily because of the indicator’s ability to provide us with a range for the upper as well as lower limits of candlestick movements at the same time. Resultantly, even with respect to the DAX, the recent breach of the -2 SD bound of the Bollinger Band by two continuous red candles (as highlighted by the yellow mark in Graph 5) is an indication we are taking into account stringently while cementing our bearish outlook for the index.


Additionally, this breach has also been complemented by a movement of the candlesticks below the 20-day MA. Resultantly, we believe that only until this movement is reversed, we believe that the price action will trail the 20-day MA on the downside.



Technical Outlook for the Stock


Support and Resistance Analysis


Graph 6: Support and Resistance Levels for Delivery Hero (Investing.com as on 04/10/2020)

As on 5th October 2020 Delivery Hero’s share price closed at EUR 98.28 after having lost EUR 0.22 since the opening of the trading day. Provided that the stock belongs to the food delivery industry, it maintained an extremely bullish trend even during the COVID-19 pandemic. However, every since the middle of July the price action for the share has been constantly consolidating. As per our analysis, we believe that the share is hovering around a very crucial level of EUR 100 which is also the shares immediate resistance according to us (as highlighted by the yellow rectangle on the upside in Graph 6). A major reason for this may be the ‘round-number’ psychology that traders and market participants tend to rely on quite heavily. On the downside, we believe that the immediate support for the share is at EUR 96.50 (as highlighted by the yellow rectangle on the downside in Graph 6).


Other than the immediate support and resistance levels, we believe that EUR 102.65 and EUR 105 are the next targets on the upside (as highlighted by the orange and blue rectangles on the upside respectively). However, if the stock was to break down its immediate line of defence, then EUR 94.5 and EUR 91.25 would form the next lines of defence on the downside (as highlighted by the orange and blue rectangles on the downside respectively).


Trend and Pattern Analysis


Graph 7: Trendline and Confluence Point Analysis for Delivery Hero (Investing.com as on 04/10/2020)


As mentioned earlier, the price action of the share had been maintaining its bullish run till the mid-July. In fact, although the higher-high higher low formation was broken with the formation of a shooting star on 21st July 2020, the bullish trendline (as highlighted by the black line in Graph 7) was only convincingly breached a month after i.e. 21st August 2020. In hindsight, what has been particularly fascinating to observe in case of the trend analysis of this stock is that elements of the down-trend parallel channel (ah highlighted by the blue lines in Graph 7) that the share has now moved into, began to occur while the stock was witnessing its bullish trend. Consequently, the bulk selling that occurred on 24th July 2020 marks the confluence of these two opposing trendlines.


Moreover, the other point of confluence is situated at EUR 102.25 which according to us is the next crucial level on the upside as well (as highlighted by the red line in Graph 7). However, we believe that unless the immediate resistance is broken convincingly, the price action will continue to hover in the parallel channel and because it has already witnessed its move towards the upper bound of the parallel channel, the next move may come down towards the lower bound of the channel. It is because of this reason we have a bearish outlook for the stock in the immediate short term.


Graph 8: Descending Triangle formation for Delivery Hero (Investing.com as on 04/10/2020)


What furthers the case for this move is the formation of a descending triangle that has been long in formation since the 52-week high made by the stock on 6th July 2020. Resultantly, as it can be observed in Graph 8, only unless the hypotenuse of the triangle is broken, (which also coincides with the immediate resistance of the stock) we believe that the price action will continue to form the pattern. In line with that thought, the most probable successive movement lies to the line of support (as shown by the orange rectangle in Graph 8).


Moving Average and DMI Analysis


Graph 9: Descending Triangle formation for Delivery Hero (Investing.com as on 04/10/2020)


20 Day - 5 Day MA and DMI Analysis


The 20-day and 5-day Moving Average analysis for Delivery Hero suggests that an extension from the 20-day MA is subsequently followed by a correction towards it. Resultantly, the current positioning of the two moving averages suggest that ever since the positive crossover, the stock has not witnessed any sign of correction because of which we believe that sooner than later this move is bound to come.


In fact, what furthers the case for this move is the negative crossover that the DMI has established with the -DI line (red line) taking over the +DI line (green line). As highlighted earlier, this implies that there is a downward pressure on price.



Stochastic and RSI Analysis


Graph 10: Descending Triangle formation for Delivery Hero (Investing.com as on 04/10/2020)


The first indicator in Graph 10 is the Relative Strength Index (RSI) of Delivery Hero for a 14-day period. The 60.24 level has been a crucial support turn resistance and vice versa for the stock. Although, there are no red flags in principle that are being flagged by the RSI at the moment, historic movement around the aforementioned level is testimony to the lack of activity above the 60.24 level for a prolonged span.


However, what furthers our case for some correction to come is the current status of the Stochastic Oscillator which is evidently in the overbought zone (i.e. above the upper bound of 80). Historical analysis of the indicator specifically for this stock suggests that what follows a continued period of the oscillator ranging in the overbought region is an immediate selling pressure. This is exactly what we are fearing currently in case of the future share price movement.



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