Scottish Mortgage manager James Anderson is the latest investor to give Deliveroo’s IPO a miss.
Baillie Gifford frontman Anderson (pictured) told The Times that he was “lukewarm” about Deliveroo’s listing, originally valued at £8.8bn, because of its focus on slower-growing markets and overreliance on London.
Anderson’s £16.5bn Scottish Mortgage trust counts two food delivery platforms, Meituan and Delivery Hero, among its top 10 holdings and has also purchased a stake in US-based Grubhub. But he thinks Deliveroo will struggle to replicate the success of these firms which operate in growing markets.
“I think that is more difficult for Deliveroo to do,” he said. “I think their model is successful in the unusual economics of London and its much more difficult to spread elsewhere.”
Growing chorus of UK fund houses shunning Deliveroo IPO
Anderson’s comments are another blow for Deliveroo which last week saw some of the UK’s largest fund houses, including Aviva Investors, Legal & General Investment Management, M&G Investments and Aberdeen Standard Investments, shun its listing.
Investors have expressed concerns over its dual-class share structure which will see founder William Shu’s shares carry 20 times as many votes as other investors.
BMO Gam, which has also given Deliveroo the cold shoulder, has raised concerns about whether the company could maintain its competitive advantage next to the market leader Just Eat Takeaway which has invested in its restaurant coverage and delivery proposition through an “employed rider” model.
A study from the Bureau of Investigative Journalism found that one in three Deliveroo riders received less than minimum wage, with some earning as little as £2 per hour.
Deliveroo narrows IPO target range due to ‘volatile’ markets
Deliveroo narrowed its IPO target to the bottom end of its range from between £3.90 to £4.60 last week to £3.90 and £4.10 today, reducing the value of the company from up to £8.8bn to up to £7.9bn.
The London takeaway service claimed its conservative pricing decision was not related to the investor backlash but reflected “volatile” market conditions and the poor performance of other IPOs over the past week.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said that Deliveroo is “trying to make sure it doesn’t hit a bump in the road as it begins its journey on the stock market”, adding that “it’s likely initial orders for the IPO have come in nearer the bottom of the target range, and by setting its sights nearer those prices, it is managing expectations on its ride to listed status.”
She said: “It may be blaming volatile market conditions for the move but the rejection of the IPO by a slew of institutional investors is likely to also have caused some concern at the delivery company.”
“Clearly Deliveroo, already facing criticism over the working conditions of its riders, doesn’t want to puncture the prospects of a successful launch,” Streeter added.
Deliveroo narrowed losses from £317m in 2019 to £223.7m last year after benefitting from restaurant closures during the pandemic. It is expected to list on Wednesday.
