Deliveroo — Key takeaways

Research: Consumer

Deliveroo — Key takeaways

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.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Consumer

Deliveroo

Key takeaways

Online services

QuickView

6 December 2023

Price

136.9p

Market cap

£2,090m

Share price graph

Share details

Code

ROO

Listing

LSE

Shares in issue

1,521m

Business description

Deliveroo is a UK-based online delivery company, primarily operating in food delivery. It has operations in the UK and Ireland, Continental Europe, Asia Pacific and the Middle East. In FY22, the company received 299m orders and had 7.4m active customers, generating £6.8bn of gross transaction value.

Bull

Recent expansion into retail unlocks a new sales channel.

Deliveroo has a strong balance sheet with net cash of £948m at H123.

Deliveroo operates across multiple geographies and product verticals, diversifying its sales mix.

Bear

Competitive industry with investment required to maintain market share.

A weak consumer environment has weighed on the financial performance since IPO.

Deliveroo’s delivery services are priced at a premium to an average in-house delivery order.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

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%.

Consensus estimates

Year
end

GTV
(£m)

Revenue
(£m)

EBITDA
(£m)

EPS
(p)

EV/Sales
(x)

EV/EBITDA
(x)

12/21

6,305

1,824

(131.4)

(15.0)

0.73

N/A

12/22

6,848

1,975

(45.0)

(11.0)

0.64

N/A

12/23e

7,128

2,060

75.8

(2.3)

0.61

16.6

12/24e

7,792

2,248

122.1

0.4

0.56

10.3

Source: Refinitiv, priced at 6 December 2023

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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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