The Deliveroo (LSE: ROO) share price rose almost 5% yesterday. That’s a pretty sharp one-day increase for a UK stock. In fact, the shares have risen by nearly 20% in 2021 so far.
So what made the share price jump yesterday? Well, it released some news that got the market excited. But I’m still not buying just yet and here’s why.
The rise
I last commented on the stock in July and said that I’d monitor the shares. I also said then that the price had been rising due to its impressive first-quarter results and its partnership with Waitrose.
That’s great, but yesterday’s rally was due to its German peer, Delivery Hero, taking a 5.09% stake in the business. I must admit I was surprised when I first saw the announcement. But clearly the market has viewed this as a positive thing, judging by the share price reaction.
Delivery Hero
It’s worth noting here that Delivery Hero is a Berlin-based business that was founded in 2011. It’s listed on the Frankfurt Stock Exchange. It also operates in over 40 countries internationally including in Europe, Asia, Latin America and the Middle East. Delivery Hero has an active history in terms of mergers and acquisitions.
In 2016 it announced that it was selling Hungryhouse to Just Eat and the German firm has an investment stake in Just Eat too. In fact, Delivery Hero has a market cap of €32bn (£27bn). This means it’s four times bigger than Deliveroo, with its market cap of £6bn. And it’s double the size of Just Eat’s €16bn.
So needless to say, the German peer is a large player in the industry. And it’s no wonder the Deliveroo share price rose by a significant amount yesterday.
What’s next?
So what does Delivery Hero’s investment mean? Well, I think it’s hard to say for sure what its intention is. But let me explain.
It hasn’t taken a controlling stake in the London-listed company. But with over 5%, it could take an activist investor role and help Deliveroo in its next stage of growth.
The food delivery market may be entering a period of consolidation. So Delivery Hero could just be testing the water with its small investment. I reckon a full-blown takeover isn’t on the cards for now, but it shouldn’t be ruled out. And after yesterday’s rally, I don’t think investors are ignoring this possibility either.
Pandemic boom
Food delivery service firms such as Deliveroo have fared well during the pandemic. It also explains why the company decided to list earlier this year on the back of the Covid-19 boom.
But I can’t forget how Deliveroo’s stock market debut was touted as the worst ever in the history of the London Stock Exchange. I also question how it will fare now that the hospitality sector has reopened and people are socialising again. Even the company is concerned about the uncertain outlook. I guess I’ll have to wait for its half-year results on 11 August.
Should I buy now?
For now I’m still monitoring the Deliveroo share price. It’s certainly interesting now that Delivery Hero has made an investment. But after yesterday’s price surge, I’m not ready to dip my toe in just yet. I’ll see what the interim numbers are like this week.
