“Deliveroo Holdings PLC (LON:ROO) customers who were encouraged to buy a slice of the company threw the dice on a disastrous debut. Like a fateful round of Monopoly they have been locked out of selling their shares for a week, while the company’s initial valuation fell sharply. Now they finally have eyes on a ‘get out of jail’ card, but it will come at a cost. They can sell when trading begins on Wednesday, but shares are around 28% below the IPO price.*
Under the terms of the offer, institutional investors were able to trade when conditional trading began on March 31st. That meant that they ‘advanced to go’ and were able to immediately offload their holdings. Although none would have averted significant losses given the immediate price plunge, they had the freedom to cut and run or decide to wait it out for prices to potentially stabilise.
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In contrast, customers, who participated under the community offer, have been paralysed, forced to watch and wait as the other players in the game determined the price. This situation could encourage a greater flight from the shares when customer investors are finally able to make a move as unconditional trading begins on Wednesday.
We would always encourage investors to have a long-term strategy, and not invest in shares for speculative short term gain. However, it is clear that IPOs should offer a much more level playing field from day one for all classes of investors.
Although opening up IPOs to more than institutional investors is welcome, a regular retail offering usually offers a better solution, allowing retail investors to begin trading from day one, via in their stocks and shares accounts. In such scenarios, the only investors who would have been locked out, would be those trading via SIPP and ISA accounts due to the rules of conditional trading.
The Easing Of Covid Restrictions Could Lead To A Downturn
More accurate pricing is also crucial to maintain retail investors enthusiasm for IPOs going forward. The offering, at £3.90 a share, gave Deliveroo a valuation of around £7.6 billion, sharply above its valuation of around £5 billion in January following an investment round, yet there had been no fundamental improvements to its prospects. Instead the floatation came at a time of increasing concerns surrounding its gig economy model and the expectation that the easing of Covid restrictions could lead to an initial downturn in business.
However, the shift to online ordering is unlikely to fully unravel and Deliveroo’s positioning as a service for premium restaurant brands could still give it the edge over some of its bitter rivals. Its foray into the grocery business could also help it prove more resilient, but questions remain about whether the company will be forced to make changes to its contractor model in the future and the extent to which that would affect its profitability prospects.
For an IPO to be judged as successful, timing can be everything and Deliveroo’s disastrous debut shows how it failed to hit the right spot on many levels.’’
*Customer Offer participants holding shares with Equiniti can trade from 8am tomorrow. Equanti, provider of share registration services is providing the Corporate Sponsored Nominee service for Deliveroo.
If you get shares as part of the customer offer, and request for them to be transferred to your HL account, we’ll add them as soon as possible after we receive them. This is expected to be on 7 April, the day unconditional trading is expected to begin. But it’s likely we’ll receive them a few hours after the market opens.
Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
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