Research: Consumer
Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.
Deliveroo |
Key takeaways
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Online services |
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6 December 2023 |
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Deliveroo’s (ROO’s) November capital markets day (CMD) saw its leadership team present initiatives aimed at progressing the customer value proposition (CVP) to drive revenue growth and improve profitability. ROO’s strategy is to unlock growth through greater market penetration and by growing customer loyalty via a hyperlocal approach, hosting both national and local brands on its platform. The shares are down 65% since the IPO in 2021, with trading affected by the weaker consumer environment amongst other factors. ROO trades at a discount to its peers, although delivery on financial targets and the tailwind of an improving consumer environment could enable the discount to narrow.
Improving the customer experience
Multiple initiatives were presented at the CMD focused on evolving and improving the CVP, which drives ROO’s financial targets. ROO revealed its entry into general merchandise retail delivery, which will complement the restaurant and grocery channels and grow the company’s total addressable market (total grocery: £600bn, total retail: £700bn). Initiatives to improve the CVP include greater personalisation, improved delivery experience (reduced wait time, smarter stacking, defect reduction) and developing ROO’s subscription service, Deliveroo Plus. ROO expects to grow advertising revenue as a share of gross transaction value (GTV) to over 2% by 2026, making ROO an attractive platform for advertising partners.
Mid-teen GTV growth targeted in the medium term
For FY23 management expects to deliver mid-single digit GTV growth and adjusted EBITDA within a range of £60–80m. Given the growth ambitions above, management is confident of achieving a 4% adjusted EBITDA margin by 2026, coupled with annual mid-teen GTV growth in the medium term (three to five years). Furthermore, management notes it should soon be free cash flow break-even (H123: £28m outflow). Company initiatives such as the improvement of the CVP, entry into new verticals and an implicit tailwind from a macroeconomic recovery underpin management’s ambitions.
Valuation: Discount to peers
Although ROO has rallied in 2023, up 60% year to date, the shares are trading at 65% below the IPO price. ROO trades on FY23 consensus multiples of 0.61x EV/sales and 16.6x EV/EBITDA, reflecting discounts of 70% and 52% respectively to its listed online peers. Excluding Ocado from the peer group, for which FY23 will see it return to a small EBITDA profit, the EV/EBITDA discount narrows to 21%.
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Consensus estimates
Source: Refinitiv, priced at 6 December 2023 |
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Research: Industrials
Solid State has confirmed the strong H124 performance, boosted by a full period contribution from Custom Power combined with the benefit of delivering the NATO contract. Despite the continuing challenges we expect organic growth to resume from the lower trend level of profit excluding the NATO uplift from H224. Following the recent 5% uplift for both revenue and PBT, FY24 guidance and market consensus estimates are unchanged.