Get set for “the biggest market debut in Britain for three years”, says Sky News. The online food-delivery platform Deliveroo is to float on the London Stock Exchange next month. The process could result in it being valued as much as £7.5bn.
In an offer branded “great food with a side of shares”, £50m of the shares in the “blockbuster” initial public offering (IPO) have been reserved for customers, who will be able to apply for up to £1,000 of them. However, priority will be given to long-standing users if the flotation is oversubscribed.
Deliveroo deserves “top marks” for inviting customers to buy a few shares in the company’s flotation, especially since “few firms bother to include retail investors in their IPOs these days”, says Nils Pratley in The Guardian. Not only is it a “fairer way to proceed”, but it will also help them “secure a crew of like-minded investors”. However, those investors may need to be very patient, since even a £5bn valuation, let alone the higher figures that some experts are talking about, relies on investors believing that the company, which is still loss-making overall, has “decades of growth ahead”.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A lockdown boost
There’s no doubt that the lockdown has been good for business, as “new customers and higher order frequency” have lifted revenue by 54% to £1.2bn last year, says Karen Kwok on Breakingviews. If you value it on a similar price-to-sales multiple as rivals Just Eat or Takeaway.com, the company could be “worth $10bn including debt”. Still, Deliveroo “may need to add extra sauce to win over new shareholders”. There are growing concerns that sales could subside as customers “flock back to restaurants”, especially in the UK and Ireland, which account for around half Deliveroo’s revenue.
Already shares in American food delivery firm DoorDash have started to slide back after a “blistering debut” due to fears about what will happen after a “return to restaurants”, says James Titcomb in The Daily Telegraph. What’s more, even if sales continue to grow, there is no guarantee that costs won’t grow even faster.
While Deliveroo makes around 88p in gross profit (earnings minus the cost of making deliveries, such as drivers’ fees) from each £10 order, changes to employment rules around the “gig economy” may wipe this out. The freelance status of delivery workers is “being challenged in several countries”, with the UK Supreme Court recently ruling against Uber.
Still, even if Deliveroo is overvalued, you can’t blame its owners for cashing in while investors are still “hungry” for growth stories, says Patrick Hosking in The Times. Already, conditions are becoming “less benign for high-growth shares” as long-term interest rates start to rise. As a result, the share prices of growth firms have started to tumble, with Tesla down by nearly a third since January. Given the roster of “fast-growing disruptors” queueing to list in London, tech firms that delay flotation could be left out in the “undignified scramble” for investor’s money.
-
UK inflation expected to rise to 3.8% tomorrowInflation is expected to jump again when July’s report is published tomorrow. Rising food prices and summer spending could be partly responsible.
-
Rachel Reeves ‘considers replacing stamp duty with property sale tax’Chancellor Rachel Reeves is rumoured to be considering replacing stamp duty land tax with a new levy on the sale of properties worth more than £500,000
-
8 of the best properties for sale with shooting estatesThe best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
What we can learn from Britain’s "Dashing Dozen" stocksStocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flowsOpinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
-
How retail investors can gain exposure to Lloyd’s of LondonIt’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
-
The flaw in Terry Smith’s strategy at FundsmithOpinion Fundsmith has invested in some excellent companies, but it has struggled to decide when to sell, says Max King
-
The goal of business is not profit, but virtueOpinion Serve your customers well, and the profits will follow, according to a new book. It rarely works the other way around, says Stuart Watkins
