Deliveroo shares claw back ground as unconditional trading begins

Today's first day of unconditional dealings offers flicker of encouragement for Deliveroo shareholders.

The belated arrival of retail investors to the Deliveroo (LSE:ROO) IPO has taken place with the food delivery app £2.5 billion lighter in value after three days of selling by institutions.

Those able to trade for the first time included an estimated 70,000 customers, restaurants and delivery riders who subscribed for shares in a community offer worth £49.4 million.

They have watched in frustration during three days of conditional dealings when they were barred from selling. But City firms weren’t, and the 390p a share they paid had reduced down to 280p by the close of trading last night, valuing the business at £5.1 billion compared with an opening £7.6 billion.

These are early days, of course, with the journey of Ocado (LSE:OCDO) from IPO dud in 2010 to FTSE 100 heavyweight a reminder for investors about taking a long-term view of their holdings.

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Today's first day of unconditional dealings also offered a flicker of encouragement after Deliveroo rose 2% to 286.35p as retail investors got their first taste of the stock.

The memory of Deliveroo's first-day slide of 30% will be hard to erase, however, after the run-up to the IPO was marred by criticism of the company’s treatment of delivery riders and by the reluctance of many top fund managers to back the offer.

Their concerns were also focused on founder and chief executive Will Shu still having control over 50% of shareholder voting rights, as well as the fact that there's still no profit despite the pandemic providing the biggest tailwind the company could ever hope for.

That benefit will fade as lockdowns end and diners return to pubs and restaurants over the summer. Deliveroo also had to be bailed out by Amazon last year, and it continues to operate in a highly competitive market.

The issue of workers' rights also continues to generate headlines, with hundreds of delivery riders today expected to attend strike rallies organised by the Independent Workers' Union of Great Britain in protest over holiday and sick pay rights.

A trading update due to be published next Thursday will be key marker for investor sentiment if it shows Deliveroo has continued a recent run of profitability at an operating level.

The value of transactions processed on the Deliveroo platform surged by 64% to £4.1 billion in 2020, but this has the potential to be £5 billion based on trading in the final quarter. The overall underlying loss for last year still amounted to £226.4 million.

Deliveroo's disappointing debut has cast a shadow over the prospects for other tech IPOs.

Darktrace: the next big IPO to watch

Darktrace is seen as the company most likely to take the plunge next after Sky News said the cybersecurity specialist could announce its intention to float as early as this week.

The Deliveroo experience and choppy start for £1 billion-valued Trustpilot means Darktrace's advisers may well urge the company to take a more conservative approach, leading to a valuation below the $5 billion previously expected.

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The company, which was the first to develop an artificial intelligence system for cyber security, has 44 offices and more than 1,300 employees. Its investors include including KKR, Summit Partners and Invoke Capital, which is the technology investment fund headed by former Autonomy boss Mike Lynch.

Invoke provided seed-funding after Darktrace was founded in 2013 by mathematicians from the University of Cambridge. Darktrace is led by Poppy Gustafsson, winner of the Veuve Clicquot Business Woman Awards in 2019.