UAE stock trading platforms saw Talabat volumes steadily increasing across UAE equity markets following that year-end lull, with Talabat being a notable performer over the last week. The food delivery company, a subsidiary of Germany’s Delivery Hero, floated its shares on the Dubai Securities Exchange in early December.
Despite healthy demand being seen on day one as the stock advanced from its debut price of 1.6Dhs, gains were short lived and the latter part of December saw a steady stream of selling, with the stock trading down to as low as 1.36Dhs by 23rd December.
Fortunes do appear to be improving however, with investors having favoured the stock, driving the share price back above the IPO level early in the New Year as a result.
Broker upgrade
The gains now have the potential to be supported by news that analysts at Barclays commenced coverage of the stock this week, granting it an overweight rating and setting a target price of 2Dhs.
The bankers see the company’s exposure beyond restaurant food delivery – there’s a growing grocery delivery service too – as being strategically astute and having the potential to grow the customer base.
Talabat’s business was also deemed to be highly profitable with further margin expansion also being possible.
Aggressive dividend policy promised
So now that Talabat is trading above its IPO price – admittedly only be a thin margin – what’s next for the company? As we noted last week when looking at grocery retailers in the region, expectations are that the disposable incomes will continue to rise in the UAE, further driving demand for convenience services and that certainly bodes well.
Pre-IPO notes from management also highlighted still-growing internet penetration and an expanding young population as key drivers. What’s more, in the IPO documentation, the company also outlines an aggressive dividend policy with $100m to be paid in April 2025, followed by a further payment of at least $400m split across two instalments I October 2025 and April 2026.
With strong cash flow projections and a low asset base, the company also committed to paying out 90% of net target income as dividend going forward subject to market conditions. Based on current valuations, the numbers reflect an annualised dividend yield of around 4%.
Do cash returns offset limited asset exposure?
The prospect of an income stream for investors immediately sets the business apart from other popular food delivery firms such as Deliveroo, JustEat Takeaway and indeed Talabat’s own parent Delivery Hero, none of which are currently paying dividends. Whilst there have been suggestions that Deliveroo may soon initiate a shareholder returns program, the bulk of the European-based peers are still struggling to turn a profit.
With lower levels of competition, softer labour costs and a broadly more prosperous outlook for the UAE economy at a macro level, does Talabat stand to flourish in the mid-term? Those fundamentals certainly lay a great foundation for the business, but with an asset light model, some investors could be deterred by the lack of exposure to real estate and the strong growth this asset class displays.
It’s also worth noting that either more competition or a downturn in the broader economy could serve to dilute that cash generation model. The 4% yield is attractive, but this has to fuel capital growth, too.
Tony Cross is a seasoned market commentator with over 15 years of experience, delivering engaging and insightful content for both journalists and investors. Specializing in macroeconomics, UK blue-chip equities, and intermarket analysis, his commentary is highly valued for its clarity and its knack for eliminating unnecessary jargon.
You can contact Tony on tony@goodmoneyguide.com
