Deliveroo PLC (LSE:ROO)’s share price may be a third of what it was since its infamous March 2021 initial public offering, but this a still too pricey, reckon Shore Capital Markets analysts.
Several factors are challenging the food delivery giant's financial outlook, notably driver wage pressure, the margin impact of expanding into grocery deliveries, and the necessity of heightened promotional activities.
Today’s Valentine’s Day strike is the second such action in a month, underscoring the volatile nature of the wage debate.
Shore Cap predicted that the 10% national living wage increase scheduled for April “could continue to put the pressure on riders considering exiting the gig economy for employment
work… acting as a constraint on the supply side of the logistics rider marketplace”.
“Sequentially lower traffic to Deliveroo’s rider application page vindicates this to some extent, which has been in decline for over six months,” noted analysts.
Furthermore, gross margins face a squeeze amid a shift towards margin-dilutive grocery deliveries, while an increased investment into price promotions adds another layer of concern.
Market consensus has Deliveroo margins expanding from 36.1% to 37.5% by full-year 2025, but Shore Cap fundamentally disagrees on this front, given “there are several material and combined catalysts which make gross margin degradation more likely”.
At 118p, Deliveroo is currently trading on an enterprise value to EBITDA premium to its European peers, laying the case down for a sell rating on its stock.