Investors should take the danger of Deliveroo’s ‘ticking bomb’ seriously | Deliveroo

A few refusenik fund managers, nervous about the (non) employment rights of Deliveroo’s riders, probably won’t derail the food delivery firm’s £8bn-ish flotation. The world is awash with money chasing IPOs with vague tech credentials.

But the concerns of Aviva Investors, Aberdeen Standard Investments and BMO Global Asset Management won’t be allayed by a read of Deliveroo’s less-than-informative prospectus. What, for example, do the self-employed riders earn in practice? If they’re getting well above the minimum wage, concerns about lack of sick pay, paid holiday and guaranteed income may melt away.

The 208-page document is next to useless about real-world earnings. No figures are given. This is surprising since Deliveroo identifies its ability to keep attracting riders as a risk factor around its “three-sided marketplace” model (the other two sides being consumers and restaurants). And the company also states that “alongside flexible work, riders care about earnings”.

Outside the pages of prospectus, Deliveroo is slightly more forthcoming. “Riders in the UK are paid for each delivery they choose to complete and earn £13 per hour on average at our busiest times,” it says. But the phrase “at our busiest times” sounds crucial in that little boast. What do riders earn during low periods that involve hanging around and waiting for orders? Nobody is saying.

Calculations are tricky, of course. Riders can refuse orders and can use rival apps, such as Uber Eats, simultaneously. And the gig-economy flexibility is clearly valued by some. Conventional “per hour” rates therefore needed to be treated with care.

But it’s Deliveroo itself that is pushing the £13 figure for peak times. If it wants to dispute calculations of the Bureau of Investigative Journalism that many UK are being paid less than the minimum wage, it should cough up its own statistics in full.

Deliveroo, as it always points out, has successfully defended its operating model in the courts, but the long-term worries of Aviva, Aberdeen and BMO about employment practices still sound correct. Deliveroo and others are well beyond the stage of scrappy startup. These issues are likely only to rise further up the political agenda. The danger of a “ticking bomb” – BMO’s phrase – should be taken seriously by investors.

Extra contingency planning is probably a wise move

What do you do if all you cinemas are closed and your net debts stand at a colossal $8.3bn? The answer, in the case of Cineworld, is to go out borrow even more. Another $213m is being added via a convertible bond. In tandem, the group will ask shareholders to suspend borrowing limits in the articles of association.

The new bond comes on paupers’ terms – an interest rate of 7.5% – but one almost has to admire the company’s ability to keep the plates spinning. Cineworld was already geared up to the eyeballs before the pandemic, or so we thought, but still managed to raise another $810m during 2020.

The latest top-up is designed to provide “a liquidity runway to year-end in the event that cinemas remain closed”. That may sound reassuring but the real danger for Cineworld is perhaps that the claimed “strong pent-up demand for affordable out-of-home entertainment” does not arrive with a whoosh.

UK cinemas will reopen in April in the US and May in the UK, all being well, but Disney has already delayed its release of Black Widow, a Marvel production, until July. And James Bond won’t be turning up until October. Advisers are working on contingency plans to raise yet more liquidity in case openings are delayed or if a $200m tax rebate in the US does not appear. Probably only wise.

In memorabilia terms Lehman Brothers still wins

Roll up, roll up, who wants to own a “black leather cloth upholstered chromed steel swivel armchair” that was once honoured (probably) by the presence of Sir Philip Green’s backside?

Yes, it’s the sale of fixtures and fittings from Arcadia’s boardroom. Creditors probably shouldn’t hold their collective breath for a windfall. The auctioneers say the collection is an example of “superyacht” styling, but the accompanying pictures suggest the pieces are only averagely garish. In the market for memorabilia from high-profile corporate collapses, Lehman Brothers still wins.

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