Talabat Holding Plc, a subsidiary of Delivery Hero SE, experienced a disappointing debut on the Dubai Financial Market following its $2 billion initial public offering (IPO). The stock closed 6.9% lower at 1.49 dirhams ($0.41) after initially rallying as much as 7.5%. This lackluster performance follows a string of underwhelming IPOs in the Middle East, raising concerns about the region’s current market sentiment.
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The IPO, priced at the top end of its marketed range at 1.60 dirhams per share, represented a 20% stake in the company. Despite strong initial demand from anchor investors, the offering struggled to maintain momentum. Delivery Hero, the parent company, also saw its shares drop by as much as 12% in Frankfurt following Talabat’s weak performance. Experts attribute the underwhelming debut to potentially inflated valuations. Mohammed Ali Yasin, CEO of Oracle Financial Consultancy and Investments, noted that Talabat’s price-to-earnings ratio of nearly 28 times significantly exceeded the benchmark Dubai Financial Market General Index’s 9 times forward earnings. This stark contrast highlights the premium investors were expected to pay for Talabat’s shares.
High Valuation a Key Concern for Investors
Ashish Marwah, Chief Investment Officer at Neovision Wealth Management, echoed these concerns, stating that Talabat’s valuation was “on the higher side of global comparables.” He suggested a period of observation to determine if the stock price stabilizes. This cautious approach underscores the uncertainty surrounding Talabat’s future performance and the broader IPO market in the region. While Middle Eastern IPOs have historically delivered strong initial returns, recent trends indicate a shift in market dynamics.
Lulu Retail Holdings Plc and Oman’s OQ Exploration & Production both experienced disappointing debuts and continue to trade below their IPO prices. These examples highlight a growing trend of underperformance in the region’s IPO market. Yasin attributes this weakening momentum to decreased liquidity in the IPO market and points to institutional and professional investors as the primary sellers in Talabat’s case, given that retail investors were only allocated 5% of the offering. This observation suggests a lack of confidence among larger investors in the current market environment.
Talabat’s Market Capitalization Nears Parent Company’s Valuation
Despite the disappointing debut, Talabat’s market capitalization stands at 34.7 billion dirhams ($9.4 billion), closely mirroring Delivery Hero’s €9.2 billion ($9.7 billion) valuation. This proximity raises questions about the long-term implications for both companies and the potential for future growth. Despite the recent downturn, the Persian Gulf remains a significant hub for IPO activity. Companies have raised over $12 billion through IPOs in 2024, spanning diverse sectors like retail, financial services, and healthcare. This continued activity reflects ongoing efforts by regional governments to bolster and diversify their capital markets.
Talabat’s regional presence across eight countries, including the UAE, Kuwait, and Egypt, is bolstered by Delivery Hero’s strategic acquisitions of Zomato’s UAE food delivery business and InstaShop. These acquisitions have solidified Talabat’s position in the market. The company benefits from population growth in key markets like Dubai, which has driven the success of consumer-focused businesses. Several major financial institutions, including Emirates NBD Capital PSC, JPMorgan Securities, and Morgan Stanley, acted as joint global coordinators and joint bookrunners for the Talabat IPO.
Conclusion: A Challenging Outlook for Talabat and the Regional IPO Market
Talabat’s underwhelming IPO performance raises concerns about its future prospects and the overall health of the Middle East’s IPO market. The high valuation, coupled with recent trends of disappointing debuts, suggests a challenging environment for new listings. While the long-term impact remains to be seen, Talabat’s performance will be closely watched as a barometer for the region’s IPO landscape. The company’s ability to navigate these challenges and deliver sustained growth will be crucial to regaining investor confidence.
