HSBC upgrades Deliveroo stock citing net cash, industry consolidation

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On Friday, HSBC upgraded Deliveroo (OTC:) Holdings PLC, listed on the London Stock Exchange as ROO:LN and over-the-counter as DROOF, from a ‘Hold’ to a ‘Buy’ status, while also increasing the price target to £150.00 from the previous £130.00. HSBC highlighted the intrinsic value they see in the company despite various challenges it has faced.

The upgrade was influenced by Deliveroo’s substantial net cash position, which has been a buffer for the share price. HSBC suggests that a more effective utilization of these funds, such as returning it to shareholders, could contribute to positive momentum for the stock. Furthermore, the firm anticipates that industry consolidation will continue to be a significant trend within the sector throughout 2024.

Another factor contributing to the positive outlook is the upcoming expiration of CEO Will Shu’s special B shares in April. These shares currently carry 20 times the voting power of A shares, and their automatic conversion to A shares is seen as an additional positive development. The analyst pointed out that with a 31% implied upside to the new target price of 150 pence, the risk-reward proposition for Deliveroo is attractive, justifying the upgrade.

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