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Sunday share tips: Deliveroo, CMC Markets

Deliveroo’s debut on the stockmarket was a flop and investors now need to gauge just how much risk they are willing to take on, or hold onto if they took part in the share sale, said the Financial Mail on Sunday’s Midas column.

Shares in the meal delivery outfit saw the previous week out from £2.82 apiece, having debuted on the London Stock Exchange at £3.90.

That was at the bottom end of the company’s expected IPO range of £3.90-4.70, which had implied a valuation for the entire firm of between £7.6-8.8bn.

What might have gone wrong?

First, it is entirely that its labour practices will be taken before the courts and the company forced to change them.

Just recently, the Supreme Court had barred Uber from classifying its drivers as self-employed.

Compounding matters, said Midas, was the fact that after eight years, Deliveroo had yet to turn a profit.

Furthermore, as lockdown restrictions were eased, consumers were likely to want to get out and about.

Big investors were also put off by founder Bill Shu structuring the IPO so that he retained 57% of the voting rights despite only owning 6.3% of the company.

“New investors will also be assessing whether Deliveroo shares, at £2.82, look cheap. Shu is undoubtedly a smart operator. He has created an international business out of nothing in just eight years. But this company is high-risk and that is unlikely to change for some time,” said Midas.

“Investors in search of adventure may feel Deliveroo is worth a punt.

“But those who prefer companies that make profits, pay dividends and look after their workers should steer clear.”

The Sunday Times’s Jammie Nimmo recommended readers ‘buy’ shares of CMC Markets, arguing that the firm was likely to continue benefitting from volatility in financial markets.

Indeed, the firm’s own clients – especially the bigger fish – weren’t about to ditch their trading accounts either, Nimmo said in his ‘Inside the City’ column.

The latter had been key to CMC’s success throughout the pandemic and would continue to be so.

In 2013, CMC founder, Peter Cruddas, had wisely chosen to focus on “big-fish” clients, instead of ordinary punters.

That proved prescient when, a few years later, regulators cracked down on spread-betters after finding that most punters lost money on ‘risky products’.

CMC had also focused on contracts for difference, which meant it was spared the bulk of the new regulations.

Covid meanwhile had driven heavy trading and the focus on big clients was now paying off especially handsomely, allowing CMC to “stun” analysts with its bullish guidance for 2022, the tipster said.

“There are reasons to argue that the rally has some way to run yet. The market volatility CMC thrives on is set to continue with the Covid fallout, and its customers are not likely to ditch their trading accounts – especially the bigger fish. Buy.”

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