The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Karen Kwok

LONDON, Nov 11 (Reuters Breakingviews) - Delivery Hero DHER.DE is looking to the Gulf to remove the sour taste of recent years. The $12 billion Frankfurt-listed group has seen its shares slump by over two-thirds since December 2020. Its decision on Monday to commence the sale of 15% of its Middle East and North Africa business, Talabat, should result in a decent enough valuation. Unfortunately for CEO Niklas Östberg, it looks hard to promptly repeat the recipe in the company’s other geographies.

Talabat looks to be a decent enough business. It grew revenue 27% to $2.3 billion last year, with a net income of $257 million. That means it should trade at a sizable premium to most other global publicly listed food delivery peers, which are unprofitable. A rare exception is $71 billion U.S. group DoorDash DASH.O, which trades at 7.7 times last year’s sales due largely to scale and efficiency advantages.

At DoorDash’s sales multiple, Talabat would be worth $17 billion. Blending that with Saudi peer Jahez’s 9526.SE own level to make the valuation more in line with the Gulf region, and the group perhaps merits a multiple of 5.6 times. That would still mean a valuation of $12.7 billion – just above the market capitalisation of Delivery Hero itself – despite representing only about a third of its parent’s total sales.

The cash proceeds received from the Talabat IPO could also help pay down Delivery Hero’s net debt, which stood at 3.5 billion euros as of 2023. But the real game for Östberg is to put a market price on the other major chunks of the group, namely in Asia and Latin America. Successfully doing that would imply the group as a whole trades at a yawning discount to the sum of its parts.

In reality, things may be more complicated. Beyond the Talabat division, only the Asia business of Delivery Hero looked profitable in any sense last year – it made 385 million euros of EBITDA in 2023. Östberg could list the Asia business too but the IPO market in Asia remains subdued.

The problem is that Delivery Hero will still take years to become profitable. Meanwhile the lower labour costs seen in the Gulf and some parts of Asia are hard to replicate elsewhere. That’s probably why the company’s overall valuation currently looks so unappetising.

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CONTEXT NEWS

Delivery Hero is planning to sell 15% of Talabat in a Dubai listing, the Frankfurt-listed company said on Nov. 11.

Founded in 2004 in Kuwait, Talabat expanded to the United Arab Emirates, Oman, Qatar, Bahrain, Jordan, Iraq and Egypt. It had more than six million active customers as of September.

The offering will take place between Nov. 19 and Nov. 28 and its shares are expected to start trading on or around Dec. 10.

Talabat plans to add both local and international investors, Reuters reported citing Talabat Chief Executive Tomaso Rodriguez, without disclosing further details or commenting on the potential valuation of the business. Proceeds will go to Delivery Hero and will be used “for general corporate purposes”.

Talabat plans to distribute a dividend of about $100 million for the last quarter of this year and to pay out dividends worth $400 million for 2025. In the following years, it intends to pay out at least 90% of its net income in dividends.

Emirates NBD, JPMorgan and Morgan Stanley have been hired as joint global coordinators and joint bookrunners.

(Editing by George Hay and Oliver Taslic)

((For previous columns by the author, Reuters customers can click on KWOK/
karen.kwok@thomsonreuters.com))