Interactive Investor

FTSE 250 round-up: bid target Royal Mail and Deliveroo in focus

There’s further speculation about the future ownership of Britain’s beleaguered UK postal operator, while investors are digesting a new update from the food delivery company.

18th April 2024 15:51

by Graeme Evans from interactive investor

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The shares of Royal Mail owner International Distributions Services (LSE:IDS) kept their bid premium today as shareholders awaited the next move by Czech billionaire Daniel Kretinsky.

The FTSE 250-listed stock drifted 5.6p to 270p, compared with the 320p a share proposed by Kretinsky’s EP Group in a takeover move rejected as “opportunistic” earlier this month.

The company added last night that the approach involving its major shareholder significantly undervalued the business and its prospects.

IDS pointed to a new management team, the modernisation programme at Royal Mail and the ongoing review by Ofcom in relation to the future of the Universal Service Obligation.

Shares rallied from 216p to 276p on the back of Wednesday’s surprise development, albeit a jump that only returned the company’s valuation to where it was in February.

Royal Mail joined the stock market in October 2013 at 330p, when the offer of shares was heavily oversubscribed in the biggest government flotation for two decades.

EP, which has until 15 May to disclose whether it intends to make an offer, is keen to engage constructively with the IDS board.

It added yesterday: “EP Group recognises that Royal Mail is in a challenging situation.

“Weak financial performance, poor service delivery and a slow transformation, in the face of a market going through structural change, have put the business under unsustainable pressure.

“With the increasing competition from multinational companies in the UK postal market, private investment in Royal Mail becomes crucial.”

Like Royal Mail, Deliveroo (LSE:ROO) has given shareholders a rocky ride since its ill-fated IPO in 2021.

Today, the food delivery business jumped 7.1p to 128.3p after its first-quarter update revealed a return to orders growth alongside a 6% increase in gross transaction value.

The company, which was priced at 390p when it made its £7.6 billion London market debut in March 2021, was boosted by particularly strong progress in international markets during the quarter. This included notable improvements in France, the UAE and Hong Kong.

Orders were flat in the UK and Ireland, a performance slightly below City hopes in what Deliveroo described as a stable but still uncertain consumer environment.

Deliveroo continues to forecast annual transaction growth in constant currency in the range of 5-9% and adjusted earnings between £110 million and £130 million.

UBS said the update had not changed its view that shares can reach 217p. In a note earlier this week, the Swiss bank said Deliveroo’s potential inclusion in FTSE indices later this year could serve as a catalyst for the stock.

The bank also regards the shares as “an attractive low-risk way” of playing the anticipated recovery in the European online takeaway space.

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