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Deliveroo: U.K. Segment Ahead With Continued Solid Relative Performance

Consumer Cyclical Sector artwork
Securities In This Article
Deliveroo PLC
(ROO)

Deliveroo’s ROO third-quarter trading update showed gross transaction value, or GTV, and orders rose 5% and fell 1% year over year, respectively. Within this, the U.K. and Ireland segment continued to outperform, especially compared with competitors. The segment’s GTV growth was 9% and orders were up 3% versus Just Eat Takeaway’s GTV—up 4% and orders down 3% in the same period—implying robust market share gains, though some of those gains may well be attributed to Deliveroo’s more focused execution in the grocery segment. The international segment, about 40% of GTV, continues to lag the U.K. and Ireland, with orders down 5% and GTV down 1% in the third quarter. Revenue take rates were down 60 basis points year on year and 20 basis points quarter on quarter due to customer value proposition investments, which the company had previously flagged.

Given the mostly in-line numbers, Deliveroo maintained guidance for 2023, with the firm expecting low-single-digit growth in GTV and adjusted EBITDA to further improve in the range of GBP 60 million-GBP 80 million. All in all, it was a solid top-line performance in the current macroeconomic context and relative to main competitors. We do not expect to materially alter our GBX 215 fair value estimate. After a strong share price performance year to date (up 36%), shares are trading in 4-star territory.

Given notable progress in underlying profitability and cash flow generation, the company had previously proposed an additional GBP 250-million capital return program, bringing the total announced in 2023 to GBP 300 million, or about 10% of the current market cap. For context, share-based compensation expenses (dilutive to shares outstanding) in the first half were GBP 45.5 million. Deliveroo’s cash balance after this extra cash distribution is expected to be a comfortable GBP 677 million, with no debt on the balance sheet.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Ioannis Pontikis, CFA

Director of Equity Research in Europe
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Ioannis Pontikis, CFA, is a Director of Equity Research in Europe for Morningstar, where he covers European grocers and global food and beverage companies like Tesco, Unilever, Nestle, and Danone, and manages a team of eight analysts across the Financials and Consumer sectors. He also leads Morningstar’s Equity Research Valuation Committee, advancing the firm's valuation methodology through significant projects such as developing new methodologies, refining our valuation model, and enhancing the efficacy of our ratings.

Before joining Morningstar in 2017, Pontikis spent six years on the buy-side, co-managing a $100M long/short equity fund and leading teams in applying machine learning to stock and equity factor selection models. He developed the fund's valuation and risk assessment framework, achieving strong risk-adjusted performance. Prior to this, Pontikis worked at Nestle S.A. in Athens, focusing on financial reporting, budgeting, and auditing proposals to improve processes.

Pontikis research has appeared in numerous media outlets including Bloomberg, CNBC, Reuters, Guardian, Frankfurter Allgemeine Zeitung among others.

Pontikis holds a bachelor’s degree in business administration from the University of Piraeus’s and a master’s degree in accounting and finance from the London School of Economics. He also holds the Chartered Financial Analyst® designation and studying towards an advanced post-masters degree in portfolio and risk management.

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