Interactive Investor

Founder-led IPO updates get mixed reception

15th April 2021 17:17

Graeme Evans from interactive investor

AO World, Deliveroo and THG were all in the spotlight today.

The entrepreneurs behind THG (LSE:THG), Deliveroo (LSE:ROO) and AO World (LSE:AO.) were in the spotlight today as trading updates from three of the biggest founder-led IPOs of recent years got a mixed reception.

Deliveroo's founder and chief executive Will Shu only joined the stock market fray last month but continues to find it hard to win over the City sceptics after another fall in share price today, 7.7p lower at 262.5p to leave the delivery app more than £2 billion down on its opening value of £7.6 billion.

It revealed transactions rose 130% to £1.65 billion in the first quarter of the year, but today's update did little to allay fears that this may be as good as it gets for the business after a period of favourable trading conditions due to Covid-19 lockdown restrictions.

This was echoed by Shu, who is taking a “prudent approach” to full-year guidance. He said: “This is our fourth consecutive quarter of accelerating growth, but we are mindful of the uncertain impact of the lifting of Covid-19 restrictions.”

Just Eat (LSE:JET) heaped pressure on Deliveroo earlier this week when it said it was growing its delivery operation at a significantly faster pace than UK competitors as it continues to prioritise growing market share in this area.

Its core marketplace platform remains the powerhouse of the FTSE 100 stock, with chief executive Jitse Groen telling The Times it was “incredibly difficult” to achieve profitability on the ultra-competitive logistics side of takeaway food.

Concerns about the Deliveroo valuation also reflect unease over workers' rights in the gig economy and the special voting powers afforded to Shu, who founded the business in 2013 with childhood friend Greg Orlowski.

Matt Moulding, the founder of Hut Group business THG, has been the subject of similar  corporate governance concerns since last year's £5.4 billion flotation included the provision of a golden share for the company's chairman and chief executive.

Shares fell back 31.5p to 671p today but are sharply higher than the IPO price, with interest in the company being driven by its exposure to the fast-growing beauty and nutrition markets through online brands Lookfantastic and Myprotein. Together with the high-margin e-commerce platform Ingenuity, they account for about 90% of sales.

An update on first quarter trading today revealed revenues jumped by 58.2%, with margins in line with previous guidance. Having called THG a “gem of a business” at the time of the flotation, analysts at Liberum today upped their price target to 1,000p from 850p previously.

They said the company continued to see very strong trading, which added to confidence in its ability to capture future growth opportunities for its own and third-party brands.

Moulding said the company had “delivered exceptionally well” on its IPO commitments, adding that he would be donating £100 million of THG shares to a charitable foundation as part of a commitment not to profit from his employment at the company. Moulding and his wife currently hold 319.3 million shares in THG, equivalent to about 25% of the group.

AO World's John Roberts, who founded the online electricals business in 2000 before its £1.2 billion listing in 2014, said in the aftermath of the Deliveroo float that the stock market still had a problem with “the uncertainty that comes with entrepreneurship”.

AO's shares initially struggled after its IPO but the business has been taken to a new level by the pandemic, with today's end-of-year update showing annual revenues increased by 62% to £1.66 billion after momentum continued in the fourth quarter. Underlying earnings are in line with City forecasts at between £63 million and £72 million, which compares with £19.6 million a year earlier.

Chief executive Roberts said: “The last 12 months have been like no other and we have been very proud to rise to the challenges for our customers - keeping their lives powering on with essential electrical and technology products.”

Shares rose 5.8p to 323.4p, below the peak of 433p at the start of 2021 but a far cry from the 61p recorded a year ago. An employee incentive scheme will reward the company's 3,000 staff should the share price go above 523p — equivalent to a market capitalisation of £2.5 billion.

Roberts, a former kitchen salesman, owns about 22% of the company he co-founded after a £1 bet in a pub. It is now a member of the FTSE 250 index, with operations in the UK and Germany.

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