What the Deliveroo IPO means for my FTSE 100 investments

Deliveroo’s disappointing IPO today has offered important takeaways for FTSE 100 investments that can hold us in good stead. 

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The FTSE 100 food delivery services giant Just Eat Takeaway (LSE: JET) has seen almost no share price change in today’s trading so far. I expect it would show some movement soon enough, though. If not today, then soon. Here is why. 

What happened to Deliveroo

Its peer, Deliveroo, debuted on the London Stock Exchange today. The IPO was disappointing, with a 30% share price tumble on listing as existing investors sold off. Other institutional investors do not want to buy.

This is primarily because of Deliveroo’s hiring practics. Its delivery drivers are informally contracted, which is creating multiple challenges. One, they  lack the benefits of full-employment. This is an ethical concern for investors. Two, increased costs from hiring them full-time could deepen its losses further. And three, it has flagged the risk of lawsuits if this escalates.

What does it mean for Just Eat Takeaway

This ties up with Just Eat Takeaway because it is in direct comparison to Deliveroo. But it seems to have little to worry about. On the contrary, it glows in contrast. The FTSE 100 company has just put 4,000 delivery riders under contract in Italy, after a court ruling for better working conditions came in. 

But even earlier in December last year, it had planned to hire 1,000 workers above minimum wage and with benefits in the UK. Going back even further, I found that in August last year, it had already decided to completely end gig work in Europe. 

In a nutshell, this means that as an investor in this FTSE 100 stock, I need not lose my sleep at night over the Deliveroo challenge. In fact, I think Just Eat Takeaway has a lot more going for it than just doing the right thing as far as workers go.

It has some difficulties too, like the fact that it is still loss-making. But I reckon that given its fast growth and market leadership, it will turn around overtime.

What it means for FTSE 100 investments

More generally, though, my big takeaway from the Deliveroo IPO is that ethical concerns could be gaining ground in investors’ minds. 

A good example of this is the share price drop in AIM-listed fast-fashion star boohoo, when it was found that its suppliers were violating minimum-wage requirements in their Leicester factories last year. In a week after the report, its share price had fallen by 44%. It has recovered quite a bit since. But it has still not gone back to the highs seen before the news broke. 

FTSE 100 sin stocks like tobacco biggies Imperial Brands and British American Tobacco or the gambling stock Flutter Entertainment are also likely to be out of ethical investors’ favour. 

This investing style, however, is likely to endorse companies like the FTSE 100 provider of emissions’ reduction catalysts, Johnson Matthey. The company is working on components to be used in electric vehicle cells. A cleaner and greener future is coming into focus, increasing popularity for such stocks. I am looking at it more carefully now. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK owns shares of Flutter Entertainment. The Motley Fool UK has recommended Imperial Brands and Just Eat Takeaway.com N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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