Deliveroo to dish out extra £250mn to shareholders

Online food delivery company Deliveroo (ROO) served up a better-than-expected half-year performance, supporting an increase in cash profit guidance and a proposal to return an extra £250mn of capital to shareholders. Chief executive Will Shu said the company was making progress towards “generating consistent positive free cash flow” – negative free cash flow narrowed from £169mn to £28mn year on year.

While the market liked what it saw, with the shares marked up by 3 per cent on the day, the guidance picture was mixed. Management raised full-year cash profit guidance to a range of £60mn-£80mn from a previous forecast of £20mn-£50mn, but cut the 2023 outlook for gross transaction value (GTV) percentage growth to lower single digits from low-to-mid single digits.

GTV per order was up by a tenth, aided by price inflation. But there were signs of demand weakness. Overall order numbers fell by 6 per cent to 145mn as consumers adjust after the pandemic delivery boom and deal with cost of living pressures. 

Of the company’s two geographic segments, the performance in the UK and Ireland was the standout. Revenues there rose by 11 per cent to £602mn, driven by higher GTV and improved advertising sales. The international performance was weaker, with revenues contracting by 2 per cent to £418mn on the back of challenging trading in France.

Numis analysts said that “the bears will point to the implied step down in 2H margin guidance, though with margins and cash in a strong position, focus should rightly return to cementing market leadership against weaker competitors, with margin progression to come from operating leverage”.

In the food delivery space, we prefer Deliveroo to Just Eat (JET), which is still trying to find a buyer for US business Grubhub. While we are generally sceptical about the sector outlook, Deliveroo remains the relatively attractive option. Hold. 

Last IC view: Hold, 87p, 16 Mar 2023