UK economy grew faster than expected in second half of 2020 – business live

The City’s biggest concern about Deliveroo is future regulation around worker rights, says Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

That’s because the company would find it harder to reach profitability if it was forced to guarantee more benefits to its couriers.

Uber, for example, has recently guaranteed minimum wage, holiday pay and pensions, following a supreme court ruling against it.

And pressure is growing on gig economy companies – 40 major legal challenges have been filed around the world as delivery drivers and riders try to obtain basic employment rights such as minimum wages and sick pay.

Lund-Yates explains:

The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success.

If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo’s already thin margins would struggle to climb, and the road to profitability would look very tough indeed. Throw in the recent developments at Uber, and general market volatility, and the net effect is one of increased anxiety. Sadly for the group, anxiety doesn’t tend to inflate share prices.

Also… investors must wonder whether demand for takeaways will hold up once the Covid-19 lockdowns are over, Lund-Yates adds:

The pandemic has offered a structural growth opportunity, but it’s worth asking if lockdowns mean things are as good as they will ever be for a takeaway service. The longer-term outlook depends on how demand holds up in a post-pandemic world, and if that road to profitability looks any clearer.”

Shares in Deliveroo got off to a horrible start on the market, says Neil Wilson of Markets.com.

He blames several factors — including the City’s wariness of the ‘dual-class’ share structure which gave founder Will Shu more power than other shareholders. Plus, many large investors had concerns over Deliveroo’s working practices and governance.

A lot of the big UK funds are not on side, which was failure number one. Will Shu could have avoided that by going for a premium listing and eschewing the tech stock desire for a dual-class structure that leaves power with the founder. Old City habits die hard, despite what the FCA wants to do.

Negative stories about Deliveroo in recent days have also dampened demand (one survey found a third of the riders received less than the legal minimum hourly wage for over-25s)

But ultimately, the firm was overpriced at £7.6bn, or 390p per share, Wilson explains:

Chiefly though it reflects the fact that even pricing the IPO at the bottom of the range, Deliveroo was demanding too high a price tag for a loss-making delivery platform in a very competitive space with a questionable path to profitability.

The books were covered, it was just plain mis-priced.

Deliveroo’s poor debut will not please investors who took part in the IPO.

That including some of its most loyal users, who got priority on the £50m of shares for UK-based customers with a Deliveroo account.

Deliveroo’s disappointing launch onto the stock market could damage London’s hopes of attacting more tech flotations, flags up Reuters.

Shares in Deliveroo opened well below the price of their initial public offering on Wednesday, falling as much as 30% to in one of the steepest trading debut falls for a major company on the London market for years.

The 390 pence price tag gave an overall valuation of £7.6bn ($10.46bn) for the company, less than initially expected, after a string of major UK fund managers said they would not take part, citing concerns about its dual class share structure and its gig economy business model.

However, it lost 2.28 billion pounds of its value within minutes of the market open, a development that one senior equity capital markets banker said would hurt the market for initial public offerings in the UK and Europe.

“Massive disconnect between the the order book and the wider market,” he said, asking to remain anonymous.

Shares in meal delivery company Deliveroo are slumping as it makes its debut on the London Stock Exchange today.

Shares in Deliveroo opened at 331p, down from the 390p which investors paid for the company in its initial public offering — the biggest in almost a decade.

And they’re continuing to slide, falling as low as 271p at one stage. They’re currently changing hands at around 310p each.

That’s a slump of around 20%, and a remarkably bad start to Deliveroo’s new role as a listed company.

Deliveroo had already been forced to price the IPO at the bottom end of its range, to get the offering away.

Several major City investors had resisted the chance to take part in Deliveroo’s IPO, including Aviva Investors, which cited a combination of investment risk and social issues.

A key concern for some investors was Deliveroo’s employment practices. The food delivery group does not guarantee minimum pay rates, as it argues couriers are independent self-employed contractors not entitled to benefits such as holiday pay and thee national minimum wage.

As we reported last week:

The IPO has provoked a sense of unease among some in the City.

A portfolio manager at another large investor said Deliveroo’s treatment of workers would raise concerns, while others in the investment industry have questioned Deliveroo’s decision to list with two share classes, a move that will give co-founder Will Shu tighter control over the business for three years.

Here’s some early reaction to the revised UK GDP figures, from Sky’s Ed Conway:

Howard Archer of EY Item Club

And Samuel Tombs of Pantheon Macroeconomics.

Today’s updated GDP report also shows that UK households saved at a record pace last year.

The ONS says:

The household saving ratio increased to 16.1% in Quarter 4 2020, an increase from a revised 14.3% in Quarter 3 2020; over the year 2020, the household saving ratio rose sharply, reaching a record high of 16.3%, compared with 6.8% in 2019.

[the houseshold savings ratio is the average percentage of disposable income that is saved].

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The UK economy grew faster than expected in the second half of last year, as it struggled back from its worst slump in centuries.

Updated data from the Office for National Statistics show that UK GDP rose by 1.3% in October-December, a sharper recovery than the 1% first estimated for the final quarter of 2020.

It means the level of GDP in the UK is now 7.3% below its Quarter 4 2019 level, revised from the previous estimate of 7.8%

The ONS has also revised up its estimate for the recovery in the third quarter. It now believes GDP surged by 16.9% in July-September when restrictions were lifted, an upwards revision of 0.8 percentage points.

But… the slump during the first wave of Covid-19 caused even more economic pain than thought. GDP in April to June 2020 is estimated to have fallen 19.5%, a downwards revision of 0.5 percentage points, with the lockdown wiping out almost a fifth of economic activity.

That means in 2020 overall, the economy is now thought to have contracted by 9.8% — marginally better than the 9.9% first estimated, but still the worst year on record.

So the annual picture is largely the same — the UK has just suffered its worst annual contraction since Britain was gripped by the Great Frost over 300 years ago.

Jonathan Athow, ONS’s deputy national statistician for economic statistics, explains:

“Our revised quarterly figures show the economy shrank a little more than previously estimated in the initial stages of the pandemic, before recovering slightly more strongly in the second half of last year,”

Also coming up today

Shares in meal delivery group Deliveroo will start trading among investors today, in London’s biggest stock market float in a decade.

But amid concerns over its treatment of riders, and choppy stock markets, Deliveroo will be valued somewhat less than it had hoped.

Shares are being sold at £3.90 each, giving a valuation of £7.6bn. That’s a meaty valuation, but around £1bn less than the top-end of expectations set by Deliveroo during the IPO process.
Deliveroo insists it has seen very significant demand from institutional investors – but several major City names are ducking out of the IPO.

My colleague Zoe Wood explains:

Although the listing is still expected to be biggest initial public offering in London for a decade, a number of leading fund managers are avoiding the shares owing to concerns about Deliveroo’s labour practices, which do not guarantee minimum pay rates for its couriers.

Along with other operators in the gig economy, Deliveroo, which is backed by Amazon, has faced legal challenges around the world from couriers and drivers seeking access to basic rights, such as minimum wages and holiday pay.

The listing will raise £1bn for the company and £500m for selling shareholders, including Amazon and Will Shu, the former investment banker who launched the service from his London flat in 2013.

The fallout from the collapse of Archegos Capital Management continues, with UK and US regulators reportedly examining whether global investment banks breached rules by holding group discussions shortly before launching a fire sale of nearly $20bn worth of assets.
The Securities Exchange Commission is said to have requested further information from major US banks Goldman Sachs, Wells Fargo and Morgan Stanley, as well as Japan’s Nomura and Swiss lender Credit Suisse about a meeting with Archegos founder Bill Hwang on Thursday. Those talks were followed by a flurry of heavy sales of stock, in which Nomura and Credit Suisse ended up taking highly significant losses while other brokers escaped more unscathed. Analysts at JPMorgan Chase have estimated that these losses could reach $5bn to $10bn, much more severe than a typical fund unwinding.

The latest eurozone inflation data, due at 10am UK time, is likely to show that the cost of living rose at a faster rate this month, partly due to increased energy prices. Yesterday, German inflation picked up, hitting 2% on a harmonised annual basis.

Investors are also keen to see the monthly US private sector payroll report from ADP, which may give insight into Friday’s non-farm payroll (the main US unemployment report). A strong reading will bolster hopes for a rapid US recovery, which could put further pressure on bond yields.

The agenda

• 7am BST: Nationwide house price index for March
• 8.55am BST: German unemployment data for March
• 10am BST: Eurozone inflation data for March
• Noon BST: US weekly mortgage applications
• 1.35pm BST: ADP payroll survey of US private sector employment in March
• 3.30pm BST: EIA weekly oil inventory figures