Investors show a lacklustre appetite for Deliveroo shares
Deliveroo shares opened at 331p, down from the 390p which investors paid for the company in its initial public offering (IPO). But shares fell to as low as 271p in early dealing.
Deliveroo had already cut its top-end valuation by £1bn before the shares went on sale.
The news comes as thousands of Deliveroo customers received notification of their allocation of shares in the company’s ‘community offer’.
Retail investors won’t be able to trade their shares until 7 April when the IPO becomes ‘unconditional’. Shares are currently in a period called ‘conditional trading’ which is not open to individual investors due to different market rules.
Deliveroo is unusual in being one of only a very few IPOs open to retail investors. The fall in value of Deliveroo shares is in contrast to many primary listings which experience a ‘first day pop’ when shares immediately increase in value from the issue price.
According to AJ Bell, the average increase between issue and opening price is 12% – a £1,200 profit on an investment of £10,000.
Online card store Moonpig saw a 25.7% difference between the issue price and the opening price, while The Hut Group saw a 20% jump.
But first day flops include The Barkby Group which lost 11.7%, Ferro-Alloy Resources which was down 8.6%, and Aston Martin Lagonda which fell 4.5% on its first day of trading.
Lee Wild, head of equity strategy at Interactive Investor, said: “It’s been a disastrous stock market debut for Deliveroo after a cool reaction from the City. The run-up to Deliveroo’s stock market debut has been marred by criticism of the company’s treatment of delivery riders, and by doubts among many top fund managers who chose not to invest in the flotation.
“IPOs typically rise in value when they begin trading publicly, which has attracted criticism from retail investors and investment platforms, including Interactive Investor. But preparations for this float have not been ideal, and there were several clear warning signs that all was not well.
“Firstly, the company doesn’t make a profit, even though the pandemic provided the biggest tailwind it could hope for. That benefit will fade as lockdowns end and diners return to pubs and restaurants over the summer. Remember, too, that Deliveroo had to be bailed out by Amazon last year, and it continues to operate in a highly competitive market.
“Most recently, several major City investors, including Aviva and Aberdeen Standard, opted out of the hotly anticipated IPO citing ESG concerns related to the company’s treatment of its employees. They’re also turned off by founder and chief executive Will Shu who still has over 50% of shareholder voting rights.
“It is also worth remembering that Deliveroo can cancel the IPO at any time until 7 April. That’s because the shares are currently trading conditionally – what’s called a ‘when issued’ basis. It is highly unlikely this will happen, but it’s worth pointing out.”