Analysis: Deliveroo's flop a wake-up call for tech hopefuls

Bairong

31/03/2021 19:47

March 31 () - A dismal London stock market debut for
Deliveroo  ROO.L , coming on the heels of other lukewarm
listings, may be a sign that investors are becoming more
discerning when it comes to buying shares in companies that have
yet to turn a profit.
    Deliveroo, the biggest UK listing in a decade, plunged as
much as 31% after trading started on Wednesday, dealing a blow
to London's hopes that more technology companies would be lining
up to follow suit.  urn:newsml:reuters.com:*:nL8N2LT22N
    The fate of the food delivery start-up was not an isolated
case as investors have become more wary of record high stock
market valuations and rising bond yields are fuelling concerns
almost everywhere about so-called 'growth' stocks -- companies
promising fast growth but often with no profits to speak for.
    A quarter of the top 20 equity listings of 2021, ranked by
proceeds, are trading at or below their offer price.
    Recent market entrants in Europe include Polish e-commerce
logistics firm InPost  INPST.AS  which debuted strongly in
Amsterdam but is now trading 10% below its listing price and
online reviews platform Trustpilot  TRST.L  which listed in
London and fell below its offer price on its second trading day.
Cloud platform DigitalOcean  DOCN.N  sank 12% on its Wall Street
debut last week.
    Earlier on Wednesday, shares of Chinese tech company Bairong
 6608.HK  slumped 16% on their Hong Kong debut, following tepid
secondary listings in the U.S. from Baidu  BIDU.O  and video
site Bilibili  BILI.O .
    "The wind has turned on all growth stocks," Angelo Meda head
of equities at Banor SIM in Milan, said, seeing Deliveroo as a
classic example of a stock left vulnerable as investors switch
to cheaper 'value' stocks geared to benefit from an economic
recovery.
    Meda said he stayed out of Deliveroo because of valuation
and regulatory concerns and blames mis-pricing for the lukewarm
performance of some European IPO stocks.
    "Pricing has often been opportunistic and in most of the
cases funds, managers and companies were selling existing
shares, meaning that proceeds did not go to fund any expansion
plans," he added.
    As the vaccination rollout against the global pandemic
progresses, investors have turned away from stocks benefiting
from social restrictions to hunt out those which might benefit
most from the recovery and whose price has been beaten down.
    A global index of value stocks  .dMIWO0000GNUS  -- a
category comprising banks, travel and energy among others -- has
risen 10% this year relative to growth stocks  .dMIWO0000VNUS 
and scored its best quarter in more than a decade.
    Some market entrants from traditional businesses, such as
used-car platform AUTO1  AG1G.DE  in Germany and footwear brand
Dr Martens  DOCS.L  in London, have performed well, trading 28%
and 21% respectively above their debut prices.
    
    COOLING APPETITE?
    Last year saw high-profile U.S. tech names AirBnB  ABNB.O 
and DoorDash  DASH.N  almost double on their first day of
trading. As recently as February, UK online retailer Moonpig
 MOONM.L  leapt 25% on its debut.
    "The pipeline is very heavy, which is a sign of dynamism.
But because it's very crowded, investors are likely to be more
selective," said Eric Arnould, head of equity capital markets
(ECM) for Natixis.    
    Ankit Gheedia, BNP Paribas' head of equity and derivative
strategy for Europe reckons the Deliveroo setback won't derail
Europe's IPO market because investors are sitting on so much
cash and authorities are keen to market their local stock
exchanges.
    "Overall appetite is there for European regulators to
encourage companies to list in Europe," Gheedia said.
    UK IPO candidates include money transfer start-up Wise and
cyber security firm Darktrace, while Dutch tech firm WeTransfer
and Swedish payments firm Klarna are poised to issue shares in
continental Europe.
    The ECM head at another European bank said the Deliveroo
fiasco won't stop the market dead in its tracks but could slow
the pipeline of future listings and inject some caution after a
record IPO year in 2020 when deal value touched $1.1 trillion.
    "Quite a few companies were due to push the button for an
IPO post-Easter. Now they will have to wait a while at the very
least to see how the overall market behaves," he said.
    

 (Reporting by Danilo Masoni in Milan and Abhinav Ramnarayan in
London; additional reporting by Thyagaraju Adinarayan;Editing by
Elaine Hardcastle)
 ((Danilo.Masoni@TR.com; +39-02-66129734; Reuters Messaging:
danilo.masoni.thomsonreuters.com@reuters.net; On Twitter https://twitter.com/damasoni))