Food Delivery Stocks Shaken Up By DoorDash Move

UK's Deliveroo could remain a bid target among a list of undervalued stocks in Europe

James Gard 27 June, 2024 | 12:15AM
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DoorDash app

Shares in UK listed food delivery stock Deliveroo (ROO) briefly rose this week on speculation that US rival DoorDash had been looking to make an offer for the firm in May.

While the deal did not materialise, the potential for other bidders to look at Deliveroo has shaken up valuations across the European sector, where the company has two major rivals, Germany’s Delivery Hero (DHER) and Just Eat Takeaway (JET), which is listed in London and Amsterdam.

DoorDash’s European ambitions could lead to more competitive pressure in the industry, says Morningstar equity analyst Ioannis Pontikis.

“DoorDash is a best-in-class operator with deep pockets, and we anticipate that a potential acquisition of Deliveroo and subsequent entry into the largest European markets, particularly the large London and UK markets, could significantly increase competitive intensity for incumbents. While this development would be great news for consumers, it could pose challenges for existing players.”

Analysts at Jefferies said in a note that the large gap in valuations between US and European stocks “will be a catalyst for the return of cross-border M&A in online food delivery in 2024”. They also argue that “the strength of the financial, industrial and strategic logic of a Deliveroo takeover” means bid interest is likely to continue.

Delivery Stocks Now Cheap After Pandemic Bubble

Shares in Delivery Hero have fallen nearly 15% in the last five days, leaving them down 3% in the year to date. Just Eat Takeaway has lost 7% of its value over the same time period, and nearly 20% so far in 2024. Pontikis argues that, even if DoorDash doesn’t buy Deliveroo, it could still look at alternative ways to boost its presence in the region, which would be negative for the existing players, which also include Uber Eats.

The food delivery sector has been volatile in the last few years. Shares in the major players rose in the pandemic as stuck-at-home consumers used meal delivery services for the first time. But the cost-of-living crisis, combined with the re-opening of restaurants and return to the office, has dampened demand. Deliveroo floated in London in 2021 at 390p but fell below 100p in 2022. Shares are up over one year as analysts have upgraded their forecasts and the firm signalled its intention to pay a dividend or buy back shares.

Morningstar rates Deliveroo as a 4-star stock, with a fair value estimate of 175p. Just Eat Takeaway shares are even more undervalued, according to Morningstar metrics; they trade below £10 but the fair value estimate is £33. Delivery Hero shares trade around EUR 24 but have a fair value estimate of EUR 34.

  • The writer owns shares in Deliveroo

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Deliveroo PLC130.50 GBX-0.68Rating
Delivery Hero SE20.14 EUR-2.89Rating
DoorDash Inc Ordinary Shares - Class A105.00 USD-0.40Rating
Just Eat Takeaway.com NV960.34 GBX-1.10Rating
Just Eat Takeaway.com NV11.40 EUR-1.13Rating

About Author

James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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