A Deliveroo courier travels along Regent Street delivering takeaway food in central London during the Covid-19 Tier 4 restrictions.
Pietro Recchia | SOPA pictures | LightRocket via Getty Images
LONDON – Shares in Amazon-backed grocery supplier Deliveroo rose around 3% on Wednesday morning as retail investors first began trading the company’s shares.
The company’s share price rose from £ 2.80 ($ 3.86) to £ 2.91 in early deals on the London Stock Exchange before falling again to £ 2.85.
Around 70,000 Deliveroo customers bought Deliveroo shares valued at £ 250 to £ 1,000 at an issue price of £ 3.90 before they were first listed last Wednesday. In total, Deliveroo sold £ 50m worth of shares to retail investors through a platform called PrimaryBid.
However, due to conditional trading restrictions, these loyal customers were locked in their positions until Wednesday of this week. As a result, they had to sit back and watch Deliveroo’s share price plummet around 30%. The largest drop came on the morning of the company’s market debut.
Some retail investors told CNBC last Thursday that they had lost hundreds of pounds on its IPO and regretted their investments.
“I wish they had allowed the conditional week to regulate the price and then placed our stocks when we could actually trade them,” one investor told CNBC.
Another said they wanted to hold onto their shares for now and hope they will go up in price in a few months. “There’s not much you can do with them at that price,” they said.
Susannah Streeter, senior investment and market analyst at stock trading platform Hargreaves Lansdown, said in a statement Wednesday that Deliveroo’s share price is being driven higher by new retail investors.
“This will be some consolation for Deliveroo customers who have been encouraged to buy a piece of the company but apparently thrown the die on a disastrous debut,” she said. “Like a fateful round of Monopoly, they were banned from selling their shares for a week while the company’s initial valuation fell sharply.”
“Now they finally have a card to get them out of jail, but it seems that many have kept it in their back pocket for the time being, waiting for prices to stabilize,” added Streeter. “The total market trading volume is almost unchanged from yesterday.”
Streeter noted that IPOs “should provide a level playing field for all classes of investor from day one”.
While the IPO helped Deliveroo raise $ 1.5 billion, it was one of the worst on the London Stock Exchange for a large company. At one point, Deliveroo was targeting a market cap of £ 8.8 billion, but the company is currently worth only £ 5.2 billion.
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 together have around £ 2.5 trillion in assets under management, avoided Deliveroo’s debut.
They raised concerns: the evaluation; the employment status of Deliveroo’s over 100,000 drivers; and the two-class share structure, which CEO Will Shu grants more than 50% of the voting rights.
Hundreds of Deliveroo drivers went on strike in the UK on Wednesday over pay and workers’ basic rights. Deliveroo says it gives drivers the flexibility to work when they want, making an average of £ 13 an hour during the busiest times.
Early investors told CNBC that Deliveroo’s bankers misunderstood pricing when it went public, with much of the blame going with Goldman Sachs. For his part, Goldman did not accept that anything was done wrong.
“Pricing an IPO is a very difficult task,” Fred Destin, a venture capitalist who was an early contributor to Deliveroo, told CNBC. “Bankers are accused of leaving money on the table when the price is too low because there is usually a decent secondary stake.”
He added: “Bankers try to find the right note to keep new investors up and running and not leave too much on the table for salespeople. This is what the book building exercise is for. It is art more than science, as the zeitgeist is very important. as we have just seen with ROO. “
According to Streeter, more accurate pricing is critical to maintaining retail investor enthusiasm for future IPOs.
“Offering £ 3.90 per share, Deliveroo had a valuation of around £ 7.6 billion after a round of investment, well above its valuation of around £ 5 billion in January. However, the outlook had not improved significantly “She said.” Instead, the IPO came at a time of growing concerns about the gig economy model and expectations that easing Covid restrictions could lead to an initial decline in business. “
To aid Deliveroo’s IPO, Goldman bought £ 75 million worth of Deliveroo stock for itself, citing sources familiar with the matter, according to a Financial Times report.
Goldman declined to comment when contacted by CNBC.
