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A dismal London stock market debut for Deliveroo, coming on the heels of other lukewarm listings, may be a sign that investors are becoming more discerning when it comes to buying shares in companies that have yet to turn a profit.

Deliveroo, the biggest UK listing in a decade, plunged as much as 31% after trading started on Wednesday, dealing a blow to London’s hopes that more technology companies would be lining up to follow suit.

The fate of the food delivery start-up was not an isolated case as investors have become more wary of record high stock market valuations and rising bond yields are fueling concerns almost everywhere about so-called ‘growth’ stocks -- companies promising fast growth but often with no profits to speak for.

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A quarter of the top 20 equity listings of 2021, ranked by proceeds, are trading at or below their offer price.

Recent market entrants in Europe include Polish e-commerce logistics firm InPost which debuted strongly in Amsterdam but is now trading 10% below its listing price and online reviews platform Trustpilot which listed in London and fell below its offer price on its second trading day. Cloud platform DigitalOcean sank 12% on its Wall Street debut last week.

Earlier on Wednesday, shares of Chinese tech company Bairong slumped 16% on their Hong Kong debut, following tepid secondary listings in the U.S. from Baidu and video site Bilibili.

“The wind has turned on all growth stocks,” Angelo Meda head of equities at Banor SIM in Milan, said, seeing Deliveroo as a classic example of a stock left vulnerable as investors switch to cheaper ‘value’ stocks geared to benefit from an economic recovery.

Meda said he stayed out of Deliveroo because of valuation and regulatory concerns and blames mis-pricing for the lukewarm performance of some European IPO stocks.

“Pricing has often been opportunistic and in most of the cases funds, managers and companies were selling existing shares, meaning that proceeds did not go to fund any expansion plans,” he added.

As the vaccination rollout against the global pandemic progresses, investors have turned away from stocks benefiting from social restrictions to hunt out those which might benefit most from the recovery and whose price has been beaten down.

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A global index of value stocks -- a category comprising banks, travel and energy among others -- has risen 10% this year relative to growth stocks and scored its best quarter in more than a decade.

Some market entrants from traditional businesses, such as used-car platform AUTO1 in Germany and footwear brand Dr Martens in London, have performed well, trading 28% and 21% respectively above their debut prices.

COOLING APPETITE?

Last year saw high-profile U.S. tech names AirBnB and DoorDash almost double on their first day of trading. As recently as February, UK online retailer Moonpig leapt 25% on its debut.

“The pipeline is very heavy, which is a sign of dynamism. But because it’s very crowded, investors are likely to be more selective,” said Eric Arnould, head of equity capital markets (ECM) for Natixis.

Ankit Gheedia, BNP Paribas’ head of equity and derivative strategy for Europe reckons the Deliveroo setback won’t derail Europe’s IPO market because investors are sitting on so much cash and authorities are keen to market their local stock exchanges.

“Overall appetite is there for European regulators to encourage companies to list in Europe,” Gheedia said.

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UK IPO candidates include money transfer start-up Wise and cyber security firm Darktrace, while Dutch tech firm WeTransfer and Swedish payments firm Klarna are poised to issue shares in continental Europe.

The ECM head at another European bank said the Deliveroo fiasco won’t stop the market dead in its tracks but could slow the pipeline of future listings and inject some caution after a record IPO year in 2020 when deal value touched $1.1 trillion.

“Quite a few companies were due to push the button for an IPO post-Easter. Now they will have to wait a while at the very least to see how the overall market behaves,” he said.

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