ADVANCED CORPORATE FINANCE
Project Assignment:
Deliveroo Business Valuation
FEDERICO FICORILLI
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Table of Contents
Abstract and introduction to results ................................................................................................................. 3
Business Description, Mission and Vision ......................................................................................................... 3
How COVID-19 impacted delivery companies................................................................................................... 4
The Future of Delivery Services: Will Recent Trends Continue? ................................................................... 4
The main risk factors and their impact on stock price ...................................................................................... 5
Risk relating to the business and operations ................................................................................................ 5
Risk relating to competition and growth ....................................................................................................... 6
Other risks ..................................................................................................................................................... 6
Risks relating to their financial condition .................................................................................................. 6
Risks relating to BREXIT. ............................................................................................................................ 7
DCF’S assumptions ............................................................................................................................................ 7
Revenues ....................................................................................................................................................... 7
Cost of Revenues ........................................................................................................................................... 8
Operating Expenses ....................................................................................................................................... 8
Depreciation .................................................................................................................................................. 9
NWC and CAPEX ............................................................................................................................................ 9
Taxes ............................................................................................................................................................ 10
Continuous Value and future growh rate .................................................................................................... 10
WACC’s assumptions ....................................................................................................................................... 10
D/E – D/V – D/E ........................................................................................................................................... 10
Beta.............................................................................................................................................................. 10
Cost of Equity............................................................................................................................................... 11
Cost of Debt ................................................................................................................................................. 11
WACC ........................................................................................................................................................... 11
Results of my DCF model ................................................................................................................................. 11
Choice of the multiples .................................................................................................................................... 12
Results found through the Scenario Analyis ................................................................................................... 13
Conclusions and final thoughts ....................................................................................................................... 13
Bibliography ..................................................................................................................................................... 14
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Abstract and introduction to results
In order to find the Enterprise Value of Deliveroo I’ve decided to use the Discount Cash Flow model, which
is based on the expected cash flows of the company. DFC analysis attempts to figure out the value of an
investment today, based on projections of how much money it will generate in the future.
In the model the assumptions are essential and you will find in the paragraph called “DFC’s assumptions”
all the explanations needed to understand the analysis.
I’d like to start from the results and in the chart below you can find my Enterprise Value and Equity Value of
the company using the DFC model.
Enterprise Value of Deliveroo is £4,863 bn and the Equity Value of the company is £5,244 bn. Moreover, In
the prospectus I’ve found the total number of outstanding shares (1,8 bn), so I am able to give you my
estimate for the share price. Given as assumed a number of shares outstanding equal to 1,8 bn, the average
price for Deliveroo is 2.88 pounds (288 pennies).
These are the results of my DCF model, moreover, I can tell you that the right target price for Deliveroo
ranges from £2,87 (DFC model) and £3,15 pounds (Weighted Average): that means an Enterprice Value
that ranges between bn £4,963 and bn £6,379. You will find in the last paragraph explanations for these
results.
I‘ve preferred at first to present my results, now in the following paragraphs I will give you the
explanations.
In this assignment I will start with a simple description of Deliveroo’s business, then I present the impact of
COVID-19 on delivery companies and the main risks that can affect the business of Deliveroo.
Then there is an entire paragraph in which I explain all the assumptions for my DFC model. Later there are
the results of the multiple analysis and the Scenario Analysis.
To conclude there is the final chapter in which I give you a summary of the assignment and my final
thoughts on the company.
Business Description, Mission and Vision
“Our mission is to be the definitive online food company. We want to be the platform that people turn to
whenever they think about food”.
Deliveroo is a food delivery company that serves as an intermediary between customers and restaurants.
Using the app, customers place (and pay for) an order, which is then conveyed to the participating
restaurant. When the food is prepared, a Deliveroo courier collects the food and delivers it to the customer
in the comfort of their own home, office, or wherever else they’ve chosen. Deliveroo takes a cut of the
revenue, and pays the delivery, unless the restaurant carries out its own deliveries.
The app uses an algorithm (named Frank) to ensure the efficient delivery – aiming to maximize earnings for
both restaurant and courier, and minimize customer waiting time. Delivery radius is limited to maintain this
level of efficiency, and to encourage people to order from restaurants that are local to them.
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Difficulties arising from the coronavirus pandemic, however, have led Deliveroo to lay off 15% of its staff.
Deliveroo’s troubles, however stem from before this period. It has made a loss on every delivery made
since day one. While revenue continues to rise, losses continue to deepen – calling the robustness of the
business model into question. Despite this, it has been ranked first and second in the Financial Times‘ list of
Europe’s fastest growing companies in 2018 and 2019.
Deliveroo is on a mission to transform the way customers eat. A key ingredient of their success is having
the best selection of popular restaurants to choose from.
I really appreciate the way they think: there are 21 meal occasions in a week (breakfast, lunch, and dinner).
Right now, less than one of those 21 transactions takes place online. They are working to change that.
This is a small description of the company, now before analyzing the possible risks of the business I will
explain briefly how COVD-19 impacted the delivery sector.
It is essential to understand the impact of COVID-19 because it was an extraordinary year where some
companies have been affected positively and others negatively.
How COVID-19 impacted delivery companies
The coronavirus pandemic has profoundly affected our world this year. It has caused many unexpected
disruptions, accelerated some existing trends and forced us to make some changes to how we work and
live. Some of these changes will likely last even after COVID-19 is no longer a threat to public health.
At first I want to highlight that the rising popularity of delivery services is not exactly a new trend. Even
before COVID-19 started making headlines, people were falling in love with the convenience of delivery
services. For example, from 2015 to 2020, the United States’ couriers and local delivery services industry
increased in market size by an average of 4.7% every year. However, the emergence of COVID-19 in 2020
has generated even more demand for delivery services, and for new reasons.
But as cities locked down to slow the spread of COVID-19, people turned to delivery services as more than
just a convenience. It became a means of staying safe and healthy at home without being cut off from
necessities like food and hygiene products. And we can see the results of this change in the graph below.
Search interest for online food delivery services during COVID-19 (Source: CapGemini)
We can notice how after the spread of COVID-19 the search for food delivery companies increased and
stayed stable for all the year. Food delivery companies become more and more popular and their revenues
rose up.
The biggest questions is to understand if this trend will continue also in the future, when thanks of the
vaccination restrictions will be removed.
The Future of Delivery Services: Will Recent Trends Continue?
It’s commonly believed that society will not simply go ‘back to normal once the pandemic subsides, but
rather, we will gradually reach a “new normal.” We still can’t say for sure exactly what this “new normal”
will look like, but most people would likely agree that the delivery service trends observed throughout 2020
will factor into the equation in some way, shape, or form.
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Consumers who have recently begun taking advantage of delivery services due to COVID-19 may continue
using these services even as the public health crisis dissipates. After all, delivery services are a convenient
alternative to driving, walking, or taking public transit to a store and hoping they have what you need. In
addition to that process, you still have to carry or transport your goods back to your home.
We can say that in the future delivery services will continue to be used, the main aspect to consider is if the
same growth that we have seen during the pandemic will continue in the future.
I’ve searched for some data in order to understand consumer behavior. According to September 2020 data
from Datassential 1, customers reported a mixed experience with food delivery, with 73% saying delivery is
too expensive once you factor in fees and tips, and only 59% said they would continue using delivery
apps in the future after the pandemic ends.
Research from data and insights company Black Box Intelligence1 came to similar conclusions: as of
December, consumer sentiment of food obtained from limited-service brands through delivery were 23%
more negative than positive. In contrast, dine-in experiences received 14% more positive mentions than
negative. Full-service brands received a negative net consumer sentiment of -6% for delivery and +56% for
dine-in experiences.
“When people go to restaurants, they tend to be more satisfied with their experience,” said Victor
Fernandez, vice president of Black Box Intelligence. “The compounded problems with takeout are if the
order is not right, takes too long, etc. and you don’t know who the responsible party is. So that means we
have a higher adoption rate but with lower guest sentiment.
I cannot say with certainty how after COVID-19 delivery services will perform, but for my analysis, gave all
the information above, I think that delivery services will continue to grow but at a slower speed than during
the pandemic. This point is fundamental in the forecast of revenues, as you will se in the
assumptions’paragraph.
The main risk factors and their impact on stock price
Deliveroo is subject to several risks. Prior to investing in Deliveroo’s shares, it is important to understand
what is the likelihood that certain risks will affect the company. I have divided the risks relative to their
areas.
Risk relating to the business and operations
Deliveroo relies on a three-sided marketplace and the primary business is to generate demand and bring
food to their consumers from restaurants.
It is important to know that when we talk about delivery services, the client has a switching cost equal to
zero. For the client it is easy to shift for delivery services. As a consequence clients may leave the platform if
they do not feel they are receiving value or are unsatisfied with the price, selection, or quality of food.
Morover restaurant may use their service to increase their volume of sales via new channels. If they are
unhappy with the volume of sales and margins they may shift to one or more competitor platforms.
I’m sure that the zero switching cost of the client is one of the most dangerous risks. Competition in the
market is so deep and delivery companies have to be able to offer the best price for the consumer at any
moment, otherwise, they lose clients and revenues. This competition raises operating expenses (like
Marketing) and lowers profit margin. This topic will be expanded in the forecast of the Operating
Expensive.
1
https://www.restaurant-hospitality.com/limited-service/will-delivery-still-be-king-post-covid-world
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Another important and challenging risk is the riders. If riders do not generate a sufficient income in the
time they choose to work with Deliveroo they may opt not to offer their services through the platform.
Looking at Deliveroo’s prospectus, it is clear how the business would be affected if rider status will change.
Nowadays riders are independent workers. Deliveroo is involved in legal proceedings under which it is
claimed that riders are engaged as employees rather than as independent contractors. (For example in Italy
the government has initially concluded that Deliveroo riders operating under historical rider models should
have been engaged on a quasi-employee basis. This would entitle them to receive the same benefits as
employees, including the minimum wage)
Judicial or governmental decision to retroactively reclassify riders could result in potential liability for failire
to comply with relevant employment and taxation requirements. This scenario could affect Deliveroo
financial condition.
I consider this risk the most dangerous. Following Deliveroo’s prospectus, legislation or judical decisions
could require them to fundamentally change their business model if riders will be engaged as employess.
This scenario could require them to incur in significan additional expenses for paying riders or “potentially
result in us even exiting that market” 2 (“that” refers to the market where the new laws regarding the riders
are approved).
Unfortunately, I’m not able to predict how this change will affect the future financial statements since
according to the company there is also the possibility of the exit from the market. But nowadays Deliveroo
has almost 400 milion in cash, so in the short time they are prepared for possible changes in the
legislature.
Risk relating to competition and growth
Deliveroo faces significant competition in the global online food delivery and logistic industries. They also
face competition from independent restaurants that offer their own online ordering services.
Moreover, as I’ve said before, the cost to switch between service providers is low and consumers, partners,
and riders frequently shift to alternative providers if it is convenient for them.
Looking at their prospectus, they do not expect to sustain their historical growth rates in future periods.
Their growth rate may be affected by others factors that may be systemic across their industry or specific.
These factors could include the following:
-
General economic conditions
Changes in government policies
Emergence of alternative business models
Decreased consumer spending, including as a result of a change of customer behavior after the
COVID-19 pandemic-related restrictions are lifted.
Other risks
Risks relating to their financial condition
The losses accounted in previous years are resulted from their investment in the development of their
platform and the expansion of their business into new areas. On 31 December 2020, they had 371.1 million
in cash, this amount they think will be sufficient to fund their expected expenses and budgeted investments
in the medium-term. However, looking at their prospectus, they say what they might not be able to
achieve a steady – state of profitability at an Adjusted EBITDA level in the longer time.
2
You can find this statement in the prospectus
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Risks relating to BREXIT.
Brexit is unprecedented in European Union history and the effects are currently uncertain. Although the UK
entered into a trade and cooperation agreement with the EU that provides the free movement of goods,
continued legal uncertainty and potentially divergent national laws in relation to financial laws and
regulations, tax and free trade agreements, and employment laws may adversely affect economic or
market conditions in the UK, EU or globally, which could contribute to instability in global financial and
foreign exchange markets, including volatility in the value of the pound sterling.
In addition, they may face challenges in retaining or attracting the same numbers of non-British EU staff
following Brexit, which could severely disrupt their business and growth. They may also face challenges
attracting riders to their platform if the conditions for EU nationals to be eligible to work in the United
Kingdom become, or are perceived to be, more onerous.
DCF’S assumptions
In this paragraph, I explain all of the assumptions of my DCF model. I have followed the scheme of the
Income Statement and the DCF, so I’ve started from Revenues’ Assumptions and ended with FCF’s
Assumptions.
Revenues
The estimation of the Revenues is fundamental in order to obtain a fair enterprise value. Even a single
percentage shift changes all the valuation, so I want to explain clearly how I’ve decided to forecast
Deliveroo’s Revenues.
At first, I‘ve concluded that using a historical approach is useless. We know how the company in recent
years has been growing 1.5X every year. Even before COVID-19 revenues jumped by 50% and with COVID19 Revenues increase by more than 60%. The company in two years has more than doubled the revenues.
But I’m sure that this growth is not sustainable. The reasons are the followings:
1. The last year was extraordinary for Deliveroo since COVID-19 helped the growth of the company,
with the spread of vaccination it is probable that restrictions will fall and fewer people will continue
to order food as they have done during lockdowns.
2. Deliveroo is a growth company and it is “normal” that grows fastly, but as it becomes more mature
it is quite likely that the same trend will not continue.
3. In the prospectus they admit that it is unlikely that they will face the same growth rate in the next
years.
Since a historical approach cannot be used, I’ve decided to look at the forecast of Europe Online Food
Delivery revenue. Deliveroo operates in 12 markets: Australia, Belgium, France, Italy, Ireland, Hong Kong,
Netherlands, Singapore, Spain, United Arab Emirates, Kuwait, and the UK. UK and Ireland are responsible
for more than 50% of the revenues. Moreover, 7 over 12 of the markets are European. As a consequence,
I’ve searched on Statistica Luiss the forecast for European food delivery in the following years, you can find
below the results:
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Europe Food Delivery Sector (Statista LUISS) 3
We can see how from 2017 to 2020 (4 years), Europe Revenues doubled. Moreover, according to Statista,
in the future 4 years, the total revenues will increase by 50% or more. Thanks to this data we can
understand how the revenues that we have experienced in the past will not follow the same trend in the
future.
We know that Deliveroo’s has doubled its revenues in 2 years (2019 to 2020) rather than 4 years. As I’ve
said this trend will not be followed in the future, but I think that Deliveroo will be able to outperform the
market. So since it has doubled the growth rate in the last years, I think that this trend will be followed also
in the future. As a consequence, I’ve calculated the growth rates from the graph above for the next years
and doubled the results in order to find the possible forecast of Deliveroo’s revenues. You can find below
just the results, on the Excel file all the calculation is presented.
Cost of Revenues
At first I’ve wanted to calculate the trend of the COGS. So I made the ratio
2018,2019,2020. You can see below the results:
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑜𝑜𝑜𝑜 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅
for the years
As you can see the trend is negative, so I hypothesize that the costs in the future will grow less than the
revenues. You can see that in the last three years the ratio is a decrease by 0,05 every year. As a
consequence, I’ve decided to use the same trend for the future. I think that in the future this trend will of
course stabilize, but since I cannot predict with certainty the exact period I prefer to use this approach.
You can find in the Excel file all the calculations, after having calculated the ratios I‘ve just multiplied them
for the future revenues found in the previous paragraph.
Operating Expenses
Looking at the ratio Operating Expenses / Revenues that you can find in the Excel file, I’ve seen how the
ratio is decreasing its value. I think that as the company becomes more mature the operating expenses
3
https://www.statista.com/outlook/dmo/eservices/online-food-delivery/europe
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(that are essentially only marketing expenses) will stabilize to a certain value. This is because the more the
company becomes bigger the more it becomes known.
I think that 2021 will be quite similar to 2020 for COVID-19 reason, so I’ve used the same ratio of 2020, but
from 2022 to 2025 the situation will be different and I’ve decided to use a fixed ratio of 0.4. Probably this
ratio will be a little bit lower but as a conservative choice, I’ve decided to leave a fixed ratio also for the
future years.
Depreciation
Depreciation is fundamental in order to reduce the taxable income. Moreover, when we need to forecast
the FCF we need to add back depreciation to the NOPAT.
In order to estimate future depreciations I decided to use an historical approach, calculating the actual
depreciation as a percentage of the Fixed Asset. As a consquence I ‘ve estimated the possible forecast for
fixed asset using an increment of 1.45 per year, calculated from the average of years before.
Of course it is unpredicatble if the company in the future will increase the fixed asset more or less. I would
have liked to use a comparable approach for the depreciation but it is useless since all the comparables
change Fixed Asset every year. Foodservice sector is really dynamic and every company adopts its own
policty, so I preferred an historical estimator rather than a comparable one.
NWC and CAPEX
Looking at the Managerial Balance Sheet in the Excel File we can see that the NWC is negative. This means
basically that Deliveroo is able to finance its investment thanks to current liabilities. In particular the item
“Trade Accounts Payable & Accruals - Short-Term” is the driven of the negative NWC. Deliveroo when
receives the money from the clients only after 2-weeks on average pay back the restaurant.
I’ve calculated the NWC variation for the last three years and we can see how NWC years by years is
decreasing its value, you can see below the NWC variation:
This is normal since Deliveroo is growing really fast and trade payables increase every year. But I don’t think
this trend will continue in the future. I find impossible to predict the future variation of NWC since it
depends on several aspects. So I prefer for the future just to put a 0 variation. I don’t think this value is
misleading since the company cannot continue to decrease the NWC for a long time and when it will
become more mature the NWC variation will stabilize.
I know that this is a strong assumption but I’m sure that trying to predict the future NWC based on
historical data is wrong. Since I think that the company will stabilize its overall growth, also its NWC will
become stable.
You can see below the CAPEX of the last three years.
I’ve noticed as in the last 3 years the CAPEX is stable despite the Depreciation is increasing, as a
consequence I’ve used a fixed value for the future (30M, equal to the three years average).
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Taxes
The actual tax corporate in the UK is 19%. But Deliveroo has never made a positive EBIT in its life, so they
have never paid taxes.
I decided to use a tax carryforward approach. I think that when they will reach a positive EBIT they will not
pay 19% on that EBIT since they will have some tax benefits.
As a consequence I’ve hypothetized that they will have the possibility to pay only the 20% of the real
taxable income. So I’ve used the following formula to calculate future taxes:
𝐼𝐼𝐼𝐼 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 < 0, 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = 0. 𝐼𝐼𝐼𝐼 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 > 0, 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 = 0,19 ∗ 0.2 ∗ 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸
Continuous Value and future growh rate
I think that after 2025 the growth of the FCF will be equal to the inflation rate. I‘ve decided to use this
approach for two reasons:
1) It is quite optimistic to predict what will be the revenues after 2025, so it is advised to stop the
analysis to that year.
2) According to my estimate the revenue growth in 2025 will be equal to 6%. Find the right future
growth is quite difficult, moreover for the analysis even a single percentual point changes all the
results, so I prefer to use the growth rate of future inflation in order to avoid crazy results. If in the
future the company will grow more than the inflation rate we will enter today in an undervalued
asset, that is way better than an overvalued asset. However, in the Scenario Analysis you can see
how the Enterprice Value changes as the future growth rate changes.
WACC’s assumptions
D/E – D/V – D/E
I’ve used a historical approach. It is not simple since the company in 2019 had negative total equity. So I’ve
decided to use only the years 2020, 2018, 2017. I’ve made an average and I found that on average the D/E
is equal to 0,24. Then using the formula below I found D/V and E/V:
𝐷𝐷
𝐷𝐷
= 𝑉𝑉
𝑉𝑉 1 + 𝐷𝐷
𝑉𝑉
Beta
𝐸𝐸
= 1 − 𝐷𝐷/𝑉𝑉
𝑉𝑉
I want to start from the choice of comparables:
-
-
-
Just Eat: Just Eat Takeaway.com is a leading global online food delivery marketplace, connecting
consumers and restaurants through its platform in 23 countries. It has a strong influence in Europe
and Canada
Delivery Hero: Delivery Hero SE is a European multinational online food-delivery service based in
Berlin, Germany. The company operates in 40+ countries internationally in Europe, Asia, Latin
America and the Middle East and partners with 500,000+ restaurants.
GrubHub: Grubhub is a leading online and mobile food-ordering and delivery marketplace with the
largest and most comprehensive network of restaurant partners. Grubhub features over 300,000
restaurants and is proud to partner with 280,000 of these restaurants in over 4,000 U.S. cities.
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I’ve found the Beta 5 years monthly provided by Refinitiv, then I’ve calculated the D/E ratios for all the
three companies based on historical results. I’ve searched for the tax rate in Germany (Delivery), US
(GrubHub), and England (UK). Then I calculate the Unlevered Beta for Deliveroo as an average of the
companies unlevered Beta.
I’ve relevered this value using UK corporate tax and I found a value of 0.46
Cost of Equity
Searching into Damodaram website 4 for UK ERP, I’ve found that its equal to 5,31%.
Since in the Damodaram’s website the ERP includes the risk free rate of the country, I’ve used a risk free
rate of Germany. From the CAPM equation I’ve found a cost of equity equal to 3.1%
Cost of Debt
Since the company has a negative EBIT, a ICR approach cannot be used. So I’ve searched for the interest
expenses in Bloomberg’s database. I’ve calculated the real total debt (excluding trade, notes payable), and
made the ratio. Then I multiply for (1-T) in order to obtain the cost of Debt after tax, which is equal to 2.7%.
WACC
Having calculated the inputs, I’ve use the WACC formula:
𝑊𝑊𝑊𝑊𝑊𝑊𝑊𝑊 = 𝑟𝑟𝑒𝑒 ∗
𝐸𝐸
𝐷𝐷
+ 𝑟𝑟𝑑𝑑 ∗ ∗ (1 − 𝑇𝑇)
𝑉𝑉
𝑉𝑉
This value is equal to 3%. You can see in the Excel File all the calculations.
Results of my DCF model
I’ve explained in detail the assumptions of my model, in this paragraph I discuss briefly the results.
Using a future growth rate of 2%, the Enterprise Value of Deliveroo is equal to £4,963 bn pounds. From the
managerial balance sheet I’ve calculated the Net Financial Position (Total Debt – Total Cash), and it is equal
to -280.1. We have a negative sign because the company has an enormous amount of cash available.
As a consequence the Equity Value is equal to 5,244 bn pounds. Looking at the prospectus we know that
the total shares that the company will have is 1,830 bn, so the target price is equal to:
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 =
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉
5244
=
= 2,87 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛𝑛 𝑜𝑜𝑜𝑜 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜 𝑠𝑠ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 1830
In the EXCEL file I’ve also made a Scenario Analysis in order to see the possible range for the price. I will
present in detail the results in the next paragraphs but I can anticipate that the range for the price is 1,92 to
4,24 pounds with an average of 2,87 pounds.
The target price is affected from all the assumptions: you can see below for example how the target price
changes as the WACC changes.
4
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
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In the next two paragraphs I provide the results of a Multiple Analysis and the Scenario Analysis. After you
will find the final paragraph with the conclusion of my analysis.
Choice of the multiples
All the multiplies based on EBITDA, EBIT, and Earnings cannot be used since the company has negative
values. So I use only the multiples based on the Sales: one linked to enterprise value the other to equity
value. I’ve also calculated the Price x Share / Book x Share multiple, but since it has lead to misleading
results I will not present it in this paragraph, if you want you can find it in the EXCEL file.
The Enterprise Value / Sales is one of the common multiples to use in valuing growth stocks. Both for
comparable sales and EV I found all the data on the Refinitiv platform. I made the multiples and then the
average.
I’ve applied the average multiple to Deliveroo’s Sales and you can find below 5
You can also see the average without Delivery Hero. I’ve noticed that Delivery is trading at multiples really
high, so I thought that an EV without Delivery could be useful.
Knowing that Deliveroo’s NFP is -280, I was able to find the equity value and the potential price ( since we
know from the prospectus they will have 1,8 bn shares outstanding). The price with Delivery Hero is 4,27,
without is 3,08
Then I decided to make the same reasoning but with a different multiple: Market Cap / Sales. Total Shares
and price (31/12/2020) are found on Refinitiv. I’ve calculated the Market Cap at 31/12 and found the
multiple.Also in this case I’ve present the result also without Delivery Hero, which has multiples quite high.
As you can notice from the Excel file the prices through comparables range between 3,10 and 4,94, with an
average of 3,9. These is little different from the value I’ve found using the DCF model. But this was quite
probable, I’ve used a very conservative way on both revenues and future growth.
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Data came from Refinitiv Database
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In the next paragraph you can find the main results provided through the Scenario Analysis. You will see
that the best scenario is aligned with the value found in the multiple.
Results found through the Scenario Analyis
In this paragraph I explain how I have conducted my Scenario Analysis, of course you can see the
calculation in the Excel file in the spreadsheet called “Sensitivity Analysis”. I’ve presented four different
scenarios: Worst Scenario, Pessimistic Scenario, Optimistic Scenario and Best Scenario.
I’ve decided to change the values of three different inputs in order to see how the stock price is affected:
1) Revenues’ growth. As I’ve explained before for my assumptions, I’ve forecast Deliveroo’s revenues
multiplying the forecast’ European Food delivery growth per year for 2.05 ( since in the last year
Deliveroo has more than doubled average growth of the market). So in the four different scenarios
you will find four different values of this multiple. Of course the best scenario is the higher and the
worst scenario is the lowest.
2) COGS’s growth. You have seen as in the assumption I’ve forecast the 2021 COGS as Revenues*0,65
and for the future the multiple decreased of 0,05 every year. So I’ve changed the starting point of
0,65 for every scenario: the futures multiples change as a consequence (for example if the starting
point is 0,66 the year after will be 0,61).
3) Future growth. For my DFC model I’ve used the inflation rate. In the analysis I’ve changed this value
of 0,005 for every scenario.
You can see in the Excel the results. As I’ve antipated in the Comparables’paragraph, the best scenario (4,24
pounds) is almost alligned with the value found with the average of comparables (3,90 pounds). The worst
scenario, the most pessimistic, with a revenues multiple every year of 1,85 and a future growth rate of
0,019 presents the value of 1,92 pounds per share.
Conclusions and final thoughts
In the first sheet of the Excel file you can find the Valuation Summary. In order to find the most likely target
price I’ve conducted three different valuations:
1. Discounted Cash Flow
2. Multiple Valuation: EV/Sales and Market Cap/Sales
3. Scenario Summary based on the DFC on which I’ve used only the Best and Worst Scenario
Using these three different models I’ve calculated five different target prices. You can see in the Excel file
all the table, below I’ve presented only the Average, Min, Max and the Weighted Average.
I consider the target price found in my DCF model the more likely (2,87 pounds), but you can see that the
average price using all the models is 3,43 pounds. I do not think that this is a wrong target price, but it is
just less likely. I’ve also provided a weighted average price using the three different valuations.
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The weighted average is calculated by giving a weight of 0,6 for the DFC (since I consider it the most likely it
has the biggest weight) and a value of 0,1 for each different model. Using this weighted average the target
price is 3,15.
For the DFC model you see how I’ve used really conservative assumptions, since I’ve got also a weighted
average using different types of valuation I can tell you that for me the right target price for Deliveroo
ranges from 2,87 and 3,15: that means an Enterprise Value that ranges between bn £4,878 and bn £5,483
pounds.
To conclude, I consider Deliveroo a challenging investment. The main risks that affect the company are the
competition and the riders. If in the future Deliveroo will be able to become the market leader and
jurisdictions will not consider riders as employees the company will become a stock must-have.
If in the following years the company will beat my revenues estimate I will be pleased to review my
analysis, For now, the fair price of the company ranges between 2,87 and 3,15.
Bibliography
-
Refinitiv Database
Bloomberg Database
MarketLine
https://deliveroo.it/it/about-us
Deliveroo’s Prospectus
https://www.statista.com/outlook/dmo/eservices/online-food-delivery/europe
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
https://www.businessofapps.com/data/deliveroo-statistics/
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