European Food-Delivery Stocks Experience Decline Following Discounted Share Sale

Shares of European food-delivery companies saw a significant drop on Tuesday after a discounted sale of a large share stake raised concerns about the sector's market valuation.

Berlin-based Delivery Hero announced on Monday that it had sold approximately 68 million shares in its British counterpart, Deliveroo, which amounts to around 4.5% of Deliveroo's total shareholding. The shares were sold at a price of 113 pence, raising £76.84 million ($97.43 million).

The sale price reflected a 7.3% discount to Deliveroo's closing price on the previous day. Consequently, when the stock market opened, the stock was marked down. However, by midday in London, it had only decreased by 3.8% to 117.3 pence.

Unfortunately, the seller, Delivery Hero, had a more pronounced decline in its stock price. Investor disappointment regarding the amount raised caused Delivery Hero's shares in Frankfurt to plummet by 6.4% to €21.14. German food-delivery company HelloFresh also experienced a decline, with its shares losing 3%.

Delivery Hero clarified that the sale was aimed at completely divesting its minority investment in Deliveroo as part of its commitment to disciplined capital allocation. The proceeds from the sale will be utilized for general corporate purposes.

Experts emphasized that this divestiture demonstrated the financial pressures faced by food-delivery companies as their business shrank in comparison to the surge experienced during the COVID-19 pandemic.

Joseph Barnet-Lamb from UBS commented, "We view this as a prudent move for Delivery Hero's liquidity profile but acknowledge that it could be perceived as evidence of balance sheet pressure."

Market Update

Broader markets continued their upward trend, following a record close for Wall Street. European bourses saw positive gains, with the DAX in Frankfurt rising by 0.2% and the CAC 40 in Paris adding 0.5% to reach a new record high. The boost in these markets can be attributed to the resurgence of luxury-goods groups.

London's FTSE 100 also experienced a 0.5% increase, although one notable underperformer was Diageo, the drinks giant. Diageo saw a slump in sales of expensive spirits in its Latin America and Caribbean segment, causing a 3% decline in its stock. This decline could possibly be explained by the fact that people stocked their drinks cabinets during the pandemic and still have enough spirits left over for the time being.

Another company experiencing a decline was International Consolidated Airlines, whose shares dipped by about 1% after being downgraded by Morgan Stanley to a "relative underweight." Despite this downgrade, the MogStan transport team stated that their base case does not foresee absolute downside as demand data remains steady and valuation is reasonable. However, the team also mentioned that factors such as high exposure to the North Atlantic market, less support from cargo operations, and potentially weaker corporate tailwinds could limit upside surprises compared to their peers. Additionally, high capital expenditures in the coming years may result in less attractive free cash flow generation for the company.