Deliveroo Shares: Analyst Sees 14% Downside

Deliveroo (LON: ROO) shares rose 2% Friday, but one Redburn Atlantic analyst sees the food delivery giant facing headwinds. The analyst has forecast a more than 13% drop in the value of Deliveroo shares from current levels.

In a note to clients last week, Redburn initiated Deliveroo with a Sell rating and a 115p price target, which represents a 13.66% potential downside from the current price.

Redburn believes that Deliveroo's UK business will need investment to defend its market position. Currently, Just Eat and Uber Eats are the company's top competitors in the UK food delivery market.

As a result of what Redburn believes is the necessary investment, the firm feels margins in the region have likely peaked.

Furthermore, the Redburn analyst noted that the company is increasingly looking to subscale internationally.

In the wide-ranging note on Friday, Redburn also initiated Just Eat Takeaway.com with a Sell rating and EUR 9 price target, telling investors that the company's market leader positions in Germany and the Netherlands are vulnerable. This is said to be due to its reliance on the third-party model and ongoing competition from Uber Eats and DoorDash.

Meanwhile, Delivery Hero was initiated with a Neutral rating and EUR 22 price target. Redburn noted Delivery Hero's strong market positions in the Middle East and certain regions in Europe but said it has a “stretched” balance sheet.

Last month, Reuters reported that Doordash had made an approach to London-listed Deliveroo in May regarding a merger. However, the company was said to have cooled its interest in a potential takeover of the company, with talks said to have ended after a disagreement on valuation.