Deliveroo – Unclear Path To Profits Lowers Price Of Shares

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Deliveroo – Unclear Path To Profits Lowers Price Of Shares
  • Deliveroo’s shares have been priced at £3.90, giving the company a market capitalisation of £7.6bn.

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  • Conditional trading in Deliveroo shares began at 8am this morning.
  • Unconditional trading, when the shares can then be held in an ISA or SIPP, is expected to begin on 7 April 2021.
  • Last week, the company estimated a price range of between £3.90 and £4.60, but narrowed that to between £3.90 and £4.10 on Monday, due to ‘volatile’ market conditions.
  • Client FAQs below

Deliveroo's Price Of Shares Isn't Quite As Tasty

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown

“Deliveroo’s price isn’t quite as tasty as it was hoping for, coming in at the lowest end of an already narrowed range. This isn’t hugely surprising given the substantial background noise surrounding the company. The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success.

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If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo’s already thin margins would struggle to climb, and the road to profitability would look very tough indeed. Throw in the recent developments at Uber, and general market volatility, and the net effect is one of increased anxiety. Sadly for the group, anxiety doesn’t tend to inflate share prices.

Deliveroo is yet to turn a profit, which makes it very difficult to value on a traditional basis. But a market cap of £7.6bn means the company’s worth 6.4 times last year’s revenue, which is some way above rival Just Eat’s 4.8 times, despite the lower price. That means there’s pressure for Deliveroo to deliver the goods, or its share price will be in the firing line.

Some of the excitement is justified. Deliveroo has been seriously buoyed by lockdowns, and as restrictions ease, we could see a permanent increase in demand for delivered food. This is one of Deliveroo’s strengths – it offers higher quality restaurant options than some peers, which, coupled with its personalised app content and hyper-localised delivery approach, could hold it in better stead. The cash hoard from the IPO will be used to fund expansion too, particularly in areas like its delivery-only ‘dark’ kitchens, which offer restaurants a way to expand without having to invest lots of cash. It could also be used to pay for acquisitions. All in, Deliveroo should have decent firepower to chase growth.

The pandemic has offered a structural growth opportunity, but it’s worth asking if lockdowns mean things are as good as they will ever be for a takeaway service. The longer-term outlook depends on how demand holds up in a post-pandemic world, and if that road to profitability looks any clearer.”

Deliveroo community offer

Deliveroo customers were able to register their interest in the IPO on the Deliveroo App until 30th March. The retail offer is being administered through PrimaryBid. Prospective investors are able to invest up to £1,000, although this can be scaled back if there’s lots of demand.

What is unconditional/conditional trading?

When a stock lists for the first time, there is a period when trades made are conditional. During this time until unconditional trading starts, the company can cancel the IPO and void any trades made. If this were to happen, any money would be returned to investors to the account where they purchased the shares. For purchases made via HL, this would be sent to the Fund and Share Account.

During conditional trading it’s not possible to transfer shares for settlement reasons. It’s also not possible to hold or purchase shares in an ISA or SIPP due to HMRC rules.

HL client FAQ’s: Can HL clients participate in the IPO through HL?

Deliveroo have decided not to run a retail offer as part of the IPO. Capital will be raised via a placing (reserved for qualifying, professional and institutional investors) and a customer offer administered by PrimaryBid.

How can clients transfer their Deliveroo shares to HL?

To transfer to HL, clients will need to have an active HL Fund and Share Account. The shares can’t be transferred directly to an ISA or SIPP due to HMRC rules. Deliveroo shares will be added to clients’ accounts once we receive them. This is expected to be on 7 April, the day unconditional trading is expected to begin.

Clients will also not be able to sell their shares until we receive them from PrimaryBid.

When can clients buy shares in a HL account?

Once listed, clients can buy shares in the secondary market as usual. Investors should be able to deal the shares through the HL Fund and Share Account once there’s a live market price, which is expected on 31 March.

Due to ISA and SIPP rules it won’t be possible to buy the shares in these accounts at first. It will be possible once unconditional trading starts, potentially at 8am on 7 April.

Will clients be able to buy shares in an ISA or SIPP on the admission date?

Unconditional trading, when the shares can then be held in an ISA or SIPP, is expected to begin on 7 April 2021.


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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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