Deliveroo shares 'arrive cold' as flotation dream becomes nightmare

The company's shares – already priced at the lowest target range – plummeted immediately, wiping an initial €2.7bn off Deliveroo’s value

Deliveroo suffered a torrid start to its share sale, adding to concern for growth and technology stocks and putting London's bid to be a hub for tech IPOs into doubt.

Deliveroo has suffered a disastrous start to life as a public company, with the food delivery firm's value taking a battering from investors shunning its London share sale.

Hyped, in the run-up, as being the largest stock market listing in London for a decade, the shares – already priced at the lowest target range – plummeted immediately, wiping an initial £2.3bn (€2.7bn) off Deliveroo’s company value.

Alarm bells had started to ring well in advance, as some institutional investors raised concerns over how Deliveroo treats its cycle couriers, the stock’s opening price range, and the company’s share structure, which allows founder and CEO Will Shu to retain control of the business for three years.

Misread market sentiment

Deliveroo's stock market listing, according to some, also misread market sentiment, with rising bond rates – particularly in the US – seeing investors exit growth stocks in recent weeks.

“This listing comes at exactly the wrong time for shareholders, with rising treasury yields bringing pressure on growth and tech stocks, and valuations based on a period of massive upheaval for the restaurant business,” said Joshua Mahony, senior market analyst at online trading firm IG, who said the shares had "arrived cold".

“No doubt, the company has the ability to grow into its valuation over time, but the expectation that we will see poor momentum for pumped-up growth stocks doesn’t exactly fill investors with complete confidence.

"Deliveroo firmly falls into the pandemic winners category, but at a time when traders are looking for value recovery plays, this doesn’t look like the most attractive proposition,” he said.

Deliveroo is the only one of the top five IPOs in London this year not to debut at the highest targeted share price.

Dented Britain’s dream

The torrid start to its listing has also, according to some analysts, dented Britain’s dream of London becoming a hub for technology IPOs.

“It’s not a great endorsement of setting IPOs in the UK compared to, say, the US, that’s for sure,” said Neil Campling, analyst at Mirabaud Securities. 

“Then you have the combination of poor timing, as many ‘at home’ stocks have been under pressure in recent weeks, and the well-publicised deal ‘strike’ by a number of A-list institutional investors.”

• additional reporting Bloomberg