Deliveroo shares push higher as retail investors start trading

LONDON – Shares of Amazon-backed food delivery company Deliveroo climbed around 3% on Wednesday morning as retail investors began trading the company’s shares for the first time.

The company’s share price fell from £ 2.80 ($ 3.86) to £ 2.91 in the first trades on the London Stock Exchange, before falling back to £ 2.85.

Some 70,000 Deliveroo customers bought between £ 250 and £ 1,000 of Deliveroo shares at the issue price of £ 3.90 ahead of its initial listing last Wednesday. In total, Deliveroo sold £ 50million of shares to retail investors through a platform called PrimaryBid.

However, due to conditional trade restrictions, these loyal customers were locked in their positions until Wednesday this week. As a result, they had to sit back and watch Deliveroo’s share price collapse by around 30%, with the biggest drop occurring on the morning of the company’s debut on the market.

Some retail investors told CNBC last Thursday that they lost hundreds of pounds in the IPO and regretted their investments.

“I wish they had let the conditional week get to settle the price and then place our shares when we could actually trade them,” an investor told CNBC.

Another said they plan to hold their shares for now and hope their price will rise in a few months. “You can’t do much with them at this cost,” they said.

Susannah Streeter, senior investment and markets analyst at equity trading platform Hargreaves Lansdown, said in a note Wednesday that Deliveroo’s share price was being pushed higher by new retail investors.

“It will be of some comfort to the customers of Deliveroo who have been encouraged to buy a share of the company but who appear to have thrown the dice on a disastrous start,” she said. “Like on a fateful Monopoly tour, they were prevented from selling their shares for a week, as the initial valuation of the company fell sharply.”

“Now they finally have a jail release card, but it looks like many have kept it in their back pockets for now, waiting for prices to stabilize,” Streeter added. “Total trading volumes in the market are virtually unchanged from yesterday.”

Streeter noted that IPOs should “provide a much more level playing field from day one for all categories of investors.”

Although the IPO helped Deliveroo raise $ 1.5 billion, it became one of the worst ever on the London Stock Exchange for a large corporation. At one point, Deliveroo was aiming for a market cap of £ 8.8bn, but the company is currently valued at just £ 5.2bn.

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 – who collectively have around £ 2.5 trillion in assets under management – all avoided the early days of Deliveroo.

They raised concerns about: evaluation; the employment status of the more than 100,000 Deliveroo runners (several of whom are planning to strike in London on Wednesday); and the two-class share structure that gives CEO Will Shu more than 50% of the voting rights.

Early investors told CNBC that Deliveroo’s bankers got their IPO prices wrong, with much of the blame going to Goldman Sachs. Goldman, for his part, did not accept that he was wrong.

“Pricing an IPO is a really tough exercise,” Fred Destin, a venture capitalist who backed Deliveroo from the start, told CNBC. “Bankers are accused of leaving money on the table if the price is too low because there is usually a decent secondary share.”

He added: “Bankers are trying to strike the right note between leaving an advantage for new investors and not leaving too much on the table for sellers. That’s what the book-building exercise is all about. C t is art more than science because the zeitgeist matters a lot, as we just saw with ROO. “

Streeter said more accurate pricing was crucial to maintaining retail investor enthusiasm for future IPOs.

The offer, at £ 3.90 per share, gave Deliveroo a valuation of around £ 7.6bn, significantly above its valuation of around £ 5bn in January following the an investment round, but there had been no fundamental improvement in its outlook, ”she said. . “Instead, the flotation came at a time when concerns were growing around its on-demand economy model and hope that the easing of Covid restrictions could lead to a first slowdown in business.”

In a bid to support Deliveroo’s IPO, Goldman bought £ 75 million of Deliveroo shares for himself, according to a Financial Times report on Tuesday, citing sources familiar with the matter.

Goldman declined to comment when contacted by CNBC.