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25th Mar 2021. 10.39am

Regency View:

Market Alert: Deliveroo IPO (Roofoods)

London’s largest flotation for almost a decade

Food delivery group Deliveroo is set to IPO later this month under the name Roofoods, in what would be London’s largest flotation for almost a decade.

The IPO will take place on Wednesday, March 31 with unconditional trading set for April 7.

The targeted price range for the IPO is £3.90 and £4.60 – giving Roofoods a market cap of around £8bn.

Deliveroo co-founder and CEO Will Shu is selling 6.7m shares in the offering, worth £30m while his remaining 6.2% stake will be worth about £500m. Amazon, Deliveroo’s largest investor will also be selling a portion of their 16% stake.

Regency view:

Deliveroo is a poster boy for stocks that have thrived during lockdown.

Its revenues surged by 61% in 2020 up from £2.5bn (FY 2019) to £4.1bn (FY 2020) as restaurants were forced to close, making takeaways the only option.

Like many early-stage growth businesses, Deliveroo is loss making as it focuses on gaining market share. However, whilst losses have been reducing (£233m:2020 versus £317m:2019), Deliveroo will need to quickly prove to the market that it can increase profit margins as well as sales otherwise it may be punished.

An example of this punishment comes in the form of Deliveroo’s rival Just Eat Takeaway.com, whose share price has fallen by a third in recent months after disappointing the market on profit margins.

Just Eat’s price action is also indicative of the markets rotation out of ‘lockdown stocks’ and into recovery plays – making Deliveroo’s IPO less appealing.

Just Eat Takeaway.com Daily Candle Chart

Just Eat Takeaway.com Daily Candle Chart

However, when the stock settles post-IPO and the rotation into recovery stocks has played out, Deliveroo may just offer some attractive value. The group is set to raise more than £1bn in cash when it sells new shares as part of its IPO, and this will be used to move into other high-growth markets such as the US.

How to participate?

To participate in the Deliveroo IPO, you must have ‘placed at least one order using the Deliveroo app’.

Additionally, you must be a resident of, and based in, the UK who is at least 18 years of age, and have a valid UK National Insurance number.

Alternatively, you can wait for unconditional trading to begin on April 7th and simply buy the shares in the market either physically or via a CFD or spreadbet.

Disclaimer:

This research is prepared for general information only and should not be construed as any form of investment advice.