Deliveroo shares flop 30% in IPO wiping £2bn off value

Deliveroo’s shares have flopped 30 per cent the first hour of its highly anticipated London float, wiping nearly £2 billion of its market value.

Deliveroo debuted on the London Stock Exchange at 8am this morning, seeing shares plumet to lows of £2.71 per share in the first 20 minutes.

The disappointing start to Deliveroo’s initial public offering (IPO), which was set to be the biggest London listing in a decade, comes after the delivery giant chose to list at the lower end of its target range amid growing concerns from investors.

Last week Deliveroo announced that it would sell 384 million shares at between £3.90 and £4.60, seeing it achieve a market capitalisation of between £7.6 billion and £8.8 billion.

READ MORE: Deliveroo is dropping target price as more major investors shun IPO

Days later a damning report from the Bureau of Investigative Journalism, which analysed thousands of invoices from couriers across the UK, revealed that one in three Deliveroo riders made less than £8.72 an hour, the national minimum wage for workers over 25.

The report, alongside concerns surrounding Deliveroo’s dual-share scheme, sent major investors running, forcing Deliveroo to drop its target price to between £3.90 and £4.10 on Monday, cutting its potential value by £1 billion.

At the time of writing, Deliveroo’s share price has dropped to around £3, but trading is still fluent and its share price could yet recover.

“Deliveroo’s price isn’t quite as tasty as it was hoping for, coming in at the lowest end of an already narrowed range,” Hargreaves Lansdown’s equity analyst Sophie Lund-Yates said.

READ MORE: Key takeaways from Deliveroo’s upcoming IPO: Is market dominance on the cards?

“This isn’t hugely surprising given the substantial background noise surrounding the company. The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success.

“If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo’s already thin margins would struggle to climb, and the road to profitability would look very tough indeed. Throw in the recent developments at Uber, and general market volatility, and the net effect is one of increased anxiety. Sadly for the group, anxiety doesn’t tend to inflate share prices.

“Deliveroo is yet to turn a profit, which makes it very difficult to value on a traditional basis. But a market cap of £7.6bn means the company’s worth 6.4 times last year’s revenue, which is some way above rival Just Eat’s 4.8 times, despite the lower price. That means there’s pressure for Deliveroo to deliver the goods, or its share price will be in the firing line.”

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