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

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.