London’s biggest public listing so far this year launches today as Deliveroo Holdings (LSE:ROO) floats via an initial public offering (IPO). The food-delivery firm was pitched to go live with a valuation of £7.6bn. But in recent weeks it’s been enduring a less enthusiastic response than could be expected for such a prominent entrance.
Funds avoiding Deliveroo’s IPO
Several major investment funds have opted not to get involved because of concerns over the way the company treats its couriers. Legal & General Investment Management, Aviva Investors, and Aberdeen Standard Investments are not participating because they are looking for sustainable investments that align with socially responsible investing practices.
With this disappointing setback, the shares were expected to trade at the bottom end of the predicted range, around £3.90 each. They actually swung between £2.71 and £3.45 during the first hour of trading, shaving more than £2bn off the entry point.
Prior to IPO, the company had orders for several times the number of shares on offer, with 30% reserved for three core investors. Deliveroo’s biggest investor is Amazon, and it sold around £91m of its shares in the IPO.
The IPO comes with a dual-class share structure. This means its CEO will have extra-large voting rights for the next three years. It’s another issue that concerns institutional investors worrying about fair corporate governance.
A difficult time to launch
Deliveroo’s rivals Just Eat Takeaway.com, Delivery Hero and HelloFresh have all had a volatile year. Just Eat Takeaway.com’s share price is up 10% in a year, but down 24% in six months. Delivery Hero began the year at an all-time high but has since fallen 26%. And HelloFresh has slipped 18% since last month.
With hopes pinned on escaping the pandemic and socialising once more, there may be less reliance on home food deliveries. But it’s also something consumers have come to enjoy, and there’s always the chance this channel will continue to thrive far into the future.
Deliveroo transactions increased by 64.3%, to £4.1bn in 2020 and rose 121% in January and February this year. With little else to look forward to, good food is on everyone’s minds. The company has several high-quality restaurant offerings on its platform. They include Whole Foods Market, Big Fat Burger Co, Waitrose and many local establishments. Its website and app are designed to be easy to navigate and order through. This gives it British tech stock status, which has been a sought-after sector for investors this past year. Deliveroo also offers convenience store grocery delivery, which is a market in which it may well continue to thrive.
The UK and Ireland account for around half its revenue, and it operates in 12 markets. Nevertheless, the company has yet to turn a profit and lost almost £224m in 2020.
There’s always a big question mark around whether to buy in to an IPO. I’m not tempted to invest at this early stage. I think the company has been a beneficiary of the pandemic. But I’m not sure how sustainable that success will be once restaurants and bars reopen.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. kirsteenm owns shares of Amazon. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Just Eat Takeaway.com N.V and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.