Tag: Deliveroo

Parsley Box Webinar, Wey Education Offer, Crimson Tide Placing and Deliveroo

I have just watched a Mello presentation by Parsley Box (MEAL) which was most interesting. They have recently listed on AIM at a price of 200p valuing the company at £84 million. The business supplies “ready meals” direct to consumers and targets the “baby boomers” like I and my wife, i.e. the 70+ age group, or younger. To quote from their prospectus which is well worth reading: “Parsley Box is listening intently to its customers and aspires to champion the needs of the life-loving 60+ population, whose voice has gone too long unheard and untapped”.

The products are pre-cooked and do not need refrigerating so can be stored in any cupboard with a shelf life of 6 months. It is not a subscription model and orders can be placed by phone or over the internet with next working day delivery. Convenience is clearly the key in comparison with having to visit a local store or order a take-away – you just need to open a cupboard.

The business was founded in 2017 and revenue last year was £24 million with a pre-tax loss of £3.2 million. The reason for the loss seems to be the high expenditure on marketing to grow the customer base. The management team seems very experienced even if the CEO looks a lot younger than his age. When will it make a profit? Who knows?

On a quick read of the prospectus I could not see anything amiss but I have ordered a sample pack to personally check out the product before investing – it does seem to have good reviews on the net. My only possible concern is that there are no clear barriers to entry in the business so competitors could move into the space. That was one reason why I did not consider buying shares in Deliveroo which turned into the biggest IPO flop ever – that’s apart from the dual voting structure which also put off many institutional investors and several other concerns about the business.

One surprise today was an offer for Wey Education (WEY) which I have held since 2019. It’s a bid from Inspired Education via a scheme of arrangement – a cash offer at 47.5p which is a premium of 46% to the last closing price. They already have 53% of the shares committed to vote in favour and with the offer looking very generous I think it’s likely to be a done deal. I will certainly be voting in favour.

Another slight surprise today was a placing by another small AIM company I hold which is Crimson Tide (TIDE) who share a director with Wey. They are raising £6.0 million to fund more sales/marketing and product development. The annual results also announced today were positive with revenue up 21% and pre-tax profits up 51%. However, the historic rate of growth of this business has not been great so perhaps the intention is to fix that. The amount being raised will certainly substantially dilute the share base so it needs to help with revenue and profits growth or eps will be falling significantly.

It seems to make sense to raise funds to develop the business but I will not be rushing into buying the shares particularly until the picture is clearer.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Interest Rates and the Gig Economy

You probably don’t need to be told that interest rates are at their lowest for several centuries, if not in recorded history. The fact that the Bank of England is making noises about possibly raising base rate could just be a way to try and rein back inflation (a higher base rate, or prospect of it, causes the pound to rise and that makes imports cheaper – and import costs have been one of the factors in inflation rising). But unemployment is also at its lowest level for 40 years which usually indicates a booming economy and the prospect of higher inflation to come.

Inflation is now at 2.9% measured by the C.P.I., or 3.9% based on R.P.I. which a lot of us like to use instead. Now to me the really astonishing item of news last week was that the large City of London Investment Trust managed to borrow £50 million at a fixed rate of 2.94% for 32 years (I do hold some of their shares). That’s must be one of the best deals ever surely, and shows how investment trusts have the advantage of being able to gear up by borrowing money – and why not when interest rates are so low?

In reality, the lender is not even getting a real positive rate of interest at current inflation rates, and is also betting that it won’t get any worse for the next 32 years. Astonishing, and just shows how the world economy is awash with cash.

Another couple of interesting items of news last week were that Deliveroo lost £129 million in 2016 according to accounts filed at Companies House, on revenue of £129 million. In other words, for every pound paid by customers, they lost a pound. It’s raised $472 million from investors to achieve this wonderful business model (source: FT).

Deliveroo use “self-employed” bike couriers to deliver restaurant meals. Another exponent of this “gig-economy” model is Uber who received the bad news last week that Transport for London were terminating their license to operate in London. More information on that in this blog post I wrote for the ABD: https://abdlondon.wordpress.com/2017/09/23/uber-kicked-out-of-london/ . In there I praised the merits of the service and suggested people sign the petition against it (which is rapidly heading for a million signatures).

But one reason that it is so low cost is because like Deliveroo, Uber loses money in a big way at present. To quote from one report on its financials, “Uber is cheap because the company is heavily subsidising each trip” where it was suggested that Uber’s losses as a percentage of revenue were 129% in the last quarter of 2016. Like Deliveroo, revenue is rising rapidly though.

Do we mind if these companies lose money hand over fist? If they are fool enough to do so in the race to dominate a new market why not let them. But the long term viability of both when there are obviously lots of competitors providing similar services does raise doubts about these businesses, even if London Mayor Sadiq Khan relents over Uber’s license.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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