Analysts at Numis Securities believe shares in food delivery platform Deliveroo (ROO) will hit 400p this year or early in 2022. That implies 21% upside after the stock rose 3% to 330p after reporting more rampant growth in the second quarter of 2021.
Gross Transaction Value, or GTV for short, was up 76% to £1,739 million in the three months to 30 June, with orders up 88% to 78 million, reflecting continued growth even as the pandemic restrictions began to ease. As a result, management have upgrade GTV growth expectations to now be in the 50% to 60% range versus the previous 30% to 40% guidance.
‘This is an encouraging maiden trading update from Deliveroo, building credibility following a weak start on public markets,’ said Numis number crunchers.
CAR CRASH IPO
Deliveroo listed its shares on the London market in April at 390p (£7.6 billion market capitalisation) but the stock fell sharply on its first day of trading. This was because of ongoing concerns about its over-reliance on London, its dual class share structure and the potential for greater regulation on its workers’ rights.
News today that soaring GTV will not translate into an equivalent lift to profits will give Deliveroo sceptics further ammunition. Gross profit margin on GTV is expected to be in the lower half of the 7.5% to 8% range, primarily down to a reduction in the average order value as part of lockdown easing, according to Numis.
MODEL QUESTIONED
‘It looks to me like it should be making more money if GTV growth is a full 20 percentage points higher than expected,’ batted back Neil Wilson, chief market analyst at Markets.com.
‘This poses serious questions about the model if it cannot at least deliver margins in the upper range of expectations on such impressive sales growth.’
But Numis disagrees and its analysts continue to see Deliveroo as ‘our play in the food delivery sector’ given its hyper-local approach to delivering the best consumer experience underpinning long-term market share gains.
Consensus estimates for the full year to 31 December 2021 are calling for revenues of £1.73 billion (up 46%) and adjusted earnings before interest, tax, depreciation and amortisation losses of £195 million, up from a loss of £11.8 million in 2020.