Like housemates arguing over what sort of takeaway to order, Deliveroo PLC (LON:ROO) has divided City brokers as they initiated coverage on the recently listed shares.

Jefferies said that Deliveroo is “the definitive online food company”, the “inventor” of the business model and has first-mover advantage in grocery, prompting a ‘buy’ recommendation and price target of 390p.

READ: Deliveroo and Waitrose expand grocery delivery deal after strong demand

“It is therefore on course to do two things its valuation multiple suggests it won’t do: thrive in a competitive landscape and generate sustained underlying earnings (EBITDA),” analysts said.

They reckon that the delivery group is exposed to large, underpenetrated markets as online share is still low, with potential for “significant” secular growth.

“Without logistics, there would be no secular growth story in online food… and as the inventor of the logistics-enabled marketplace, Deliveroo is best-in-class,” the US investment bank said.

“This is the foundation stone of its differentiated proposition and its path to becoming not just a platform for takeaway food but the definitive online food company. With Editions (dark kitchens) and Signature (white label), it has accelerators for takeaways. In grocery, it has first-mover advantage in meals. And in its subscription plan, Plus, it has a tool for unifying both categories.”

Fellow bank Goldman Sachs also recommended the stock as a ‘buy’, with 420p price target and expectations of cash burn in the near term and positive free cash flow generation from 2024.

Analysts forecast adjusted underlying losses to come in at £179mln in 2021, £10mln smaller than last year, and turning into profits in 2023.

Citi and JP Morgan stay bearish

Citi, instead, remained more cautious and gave it a ‘neutral/high risk’ rating with 285p target price.

“We see Deliveroo as well-capitalised (post IPO) with a solid track record of execution, and 2021 gross transaction value guidance has been de-risked,” analysts said.

“However, the path to scale and #1 is not easy as it faces rising competitive intensity in its main markets and uncertainty over-regulation.”

The bank echoed Jefferies’ sentiment regarding the wider market, boasting a total addressable value of £1.2 trillion and 3-4% online penetration, though it noted that “scale, a strong position and sufficient capital are essential”.

Similarly, JP Morgan, started coverage with a ‘neutral’ recommendation and 285p target price, adding it is “positive” on the company’s value proposition.

“Growth rates will slow with easing COVID-19 restrictions and comps are getting more difficult but food delivery is benefiting from strong structural tailwinds long term,” it said.

“However, with three (well-funded) players competing hard for market share in the UK, visibility on marketing spend is low.”

Shares rose 2% to 251.6p on Tuesday at midday.

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