Deliveroo shares rise as retail investors start trading

A Deliveroo courier travels along Regent Street delivering takeaway food in central London during Covid-19 level 4 restrictions.

Pietro Recchia | Images SOPA | LightRocket via Getty Images

LONDON – Shares in Amazon-backed food delivery company Deliveroo rose about 3% on Wednesday morning as retail investors began trading the company’s shares for the first time.

The company’s share price jumped from £ 2.80 ($ 3.86) to £ 2.91 in early trading on the London Stock Exchange, before dropping again to £ 2.85.

Some 70,000 Deliveroo customers bought £ 250 worth of Deliveroo shares and £ 1,000 at the issue price of £ 3.90 before their initial listing last Wednesday. In total, Deliveroo sold £ 50 million worth of shares to retail investors through a platform called PrimaryBid.

However, due to conditional trading restrictions, these loyal clients were locked in their positions until Wednesday of this week. As a result, they’ve had to sit back and watch Deliveroo’s stock price drop by around 30%, with the biggest drop coming on the morning of the company’s market debut.

Some retail investors told CNBC last Thursday that they had lost hundreds of pounds in the IPO and that they regretted their investments.

“I wish they had let the conditional week set the price and then put our shares in when we could actually trade them,” one investor told CNBC.

Another said they planned to hold their shares for now and expected them to rise in price in a few months. “You can’t do much with them at this price,” they said.

Susannah Streeter, a senior investment and markets analyst at equity trading platform Hargreaves Lansdown, said in a note Wednesday that Deliveroo’s share price is being driven by new retail investors.

“This will be a bit of comfort to Deliveroo customers, who were encouraged to buy a part of the company, but seemed to have rolled the dice in a disastrous debut,” he said. “As a fateful round of Monopoly, they were prevented from selling their shares for a week, while the initial valuation of the company fell dramatically.”

“Now they finally have a ‘get out of jail’ card, but it seems that for now many have kept it in their back pocket, waiting for prices to stabilize,” Streeter added. “Total market trading volumes are practically unchanged since yesterday.”

Streeter noted that IPOs should “offer a much more level playing field from day one for all classes of investors.”

While the IPO helped Deliveroo raise $ 1.5 billion, it has become one of the worst on the London Stock Exchange for a large company. At one point, Deliveroo was targeting a market capitalization of £ 8.8bn, but the company is currently valued at just £ 5.2bn.

What went wrong with Deliveroo?

In the days leading up to the IPO, several large investment firms said they had no plans to invest in Deliveroo. Legal and General, Aberdeen Standard, Aviva and M&G, which collectively have around £ 2.5 trillion in assets under management, all rejected Deliveroo’s debut.

They cited concerns around: valuation; the employment situation of the more than 100,000 Deliveroo passengers (several of whom plan to go on strike in London on Wednesday); and the dual class share structure that gives CEO Will Shu more than 50% of the voting rights.

Early investors told CNBC that Deliveroo bankers mispriced the IPO, and that much of the blame fell on Goldman Sachs. Goldman, for his part, has not accepted that he was wrong about something.

“Pricing an IPO is a really tough exercise,” Fred Destin, a venture capitalist who has backed Deliveroo from the beginning, told CNBC. “Bankers are accused of leaving money on the table if the price is too low because there is usually a decent secondary portion.”

He added: “Bankers are trying to strike the right note between leaving the upper hand for new investors and not leaving too much on the table for sellers. That’s what the book-building exercise is for. It is art rather than science, as the zeitgeist matters a lot. ” as we just saw with ROO “.

Streeter said more accurate pricing is crucial to maintaining retail investors’ enthusiasm for future IPOs.

“The offering, at £ 3.90 a share, gave Deliveroo a valuation of around £ 7.6bn, well above its valuation of around £ 5bn in January after a round of investment, but there have been no fundamental improvements in their prospects, “he said. . “Instead, the float came at a time of growing concern around its gig economy model and the expectation that easing Covid’s restrictions could lead to an initial slowdown in business.”

In an attempt to shore up the Deliveroo IPO, Goldman bought £ 75 million worth of Deliveroo shares for itself, according to a report by The Financial Times on Tuesday, citing sources familiar with the matter.

Goldman declined to comment when contacted by CNBC.


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