Delivery Hero has reduced its ambition for the Dubai IPO of subsidiary Talabat with a price range valuing the company at around US$10bn versus an earlier target of US$15bn.

Bankers away from the deal had warned that a widely used target of US$13bn–$15bn was testing the boundaries for local investors who make up the bulk of buyers of Middle East deals, even if it was acceptable for international investors used to valuing companies on forward multiples.

Deals from the private sector have suffered from weaker aftermarket performance compared with government-backed flotations, with shares of supermarket chain Lulu Group still trading below pricing on its recent US$1.7bn Abu Dhabi IPO and Delivery Hero was mindful of that.

The lower valuation also takes account of the proximity to the end of the year and fund managers not wanting to gamble their annual returns on a richly valued IPO in the final weeks of 2024.

The price range valuation of Dh34.94bn–Dh37.26bn (US$9.51bn–$10.15bn) for the Dubai IPO proved compelling. The unusually narrow range also encouraged investors to submit orders without limits.

"There was a conscious decision to leave value on the table and ensure it trades well," said a banker involved. "What transpired is a really attractive price and we’re seeing the impact of that with the phones ringing at 5am."

Books were covered at the top of the range within half an hour of opening and were quickly multiple times subscribed. Bankers reported strong traction from local accounts and international long-only and emerging market funds.

“Delivery Hero listened to the market,” said another banker on the deal. “People see this as a very attractive level given the growth for this market and the fact this is seen as a best-in-class asset.”

A valuation of up to US$15bn had been widely discussed with a deal size of around US$1.5bn implied from a free-float as low as of 10%. Instead, Delivery Hero is offering 3.49bn shares, representing 15% of Talabat, at Dh1.50–Dh1.60 each for a deal size of Dh5.24bn–Dh5.6bn so it is still taking home in the region of US$1.5bn.

Focus on growth

The final range represents a discount to peers at a P/E multiple of 20.7–22.1 times and EV/Ebitda of 16.1–17.1 times on 2025 consensus compared with peers trading at 29.3–98.9 times on P/E and 17.5–26.8 times EV/Ebitda.

Growth multiples are the focus but the company will also pay a dividend with a yield of 3.9%–4.2% based on an intended 2025 minimum of Dh1.47bn.

“Having a bit of dividend yield helps and 4% with this growth profile is excellent,” said the first banker involved.

According to the banker, local investors are showing more demand for growth stocks amid a higher rate environment.

“High dividend, low multiple is history,” the banker said. “We’ve recently seen companies such as [supermarket operator] Spinneys marketed as a growth story on forward multiples. People have got used to this. What’s different here though is the issuer has listened and not tried to push every penny.”

Spinneys shares have been below issue for much of the time since it listed in May and are now only just above pricing.

Reason to budge

Delivery Hero is raising funds to reduce leverage, while also hoping to unlock value with the separate listing.

Jefferies analysts project a ratio of 4.2 times net debt to Ebitda at year-end, which could be reduced to 2.2 times with US$1.5bn of IPO proceeds.

Talabat is no longer seeking a valuation in excess of its parent's €10.7bn market cap, but even so, the separate listing should rerate Delivery Hero shares.

Local conviction for the deal has been helped by the inclusion of cornerstone commitments for up to 16.4% of the offer, with Emirates NBD-managed UAE Strategic Investment Fund committing Dh514m, Abu Dhabi Pension Fund in for Dh220m and Emirates International Investment Company at Dh184m.

Both Abu Dhabi Pension Fund and EIIC were cornerstones on Lulu's IPO, while UAE Strategic Investment Fund was a backer of privatisations including Tecom, Salik and Dewa and has more recently begun to increase its participation in private sector deals.

In addition to the cornerstones, the second banker involved reported anchor-sized orders already in the book.

Management held face-to-face meetings in the UAE last week and will travel to London this week.

A retail offer for up to 5% closes on November 27 and institutional books close on November 28. A final price is expected on November 29 with shares trading on December 10.

Emirates NBD is listing adviser, and joint global coordinator with JP Morgan and Morgan Stanley. Abu Dhabi Commercial Bank, Barclays, EFG Hermes, First Abu Dhabi Bank, Goldman Sachs, ING and UniCredit are joint bookrunners.

Source: IFR