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Loss-making Delivery Hero to list at premium to online takeaway peers

Reuters - UK Focus

* IPO to value Delivery Hero at 4.4 bln euros

* Premium to rivals justified by market exposure-analyst

* Concerns about marketing, profitability weigh on sector

* Online to take 58 pct of market by 2020 -McKinsey

* Rocket shares fall after Blue Apron IPO disappoints

By Emma Thomasson

BERLIN, June 29 (Reuters) - Loss-making online food takeaway firm Delivery Hero will list on Friday in a flotation that values one of Europe's largest Internet startups at 4.4 billion euros ($5 billion) as investors bet on a rapid shift to ordering on apps.

Delivery Hero will become the fourth major online food delivery firm to go public in recent years, following GrubHub , Just Eat (Frankfurt: A1100K - news) and Takeaway.com, which have all seen their share price soar since listing.

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Delivery Hero is on course to trade at a premium to its peers and while some analysts say this is justified by its bigger global footprint, others are concerned that it is still making heavy losses. GrubHub (Frankfurt: A1XE9Z - news) and Just East are both profitable.

Consultants McKinsey estimate the global food takeaway market is worth 83 billion euros, growing at just 3.5 percent a year. However, online apps are rapidly taking over from called-in orders, with McKinsey predicting they will account for 58 percent of the total market by 2020, from 36 percent in 2016.

Founded in Berlin in 2011, Delivery Hero is riding that wave and now employs more than 6,000 people, providing a digital platform to order meals from more than 150,000 restaurants in 40 countries in Europe, the Middle East, Latin America and Asia.

The listing should provide a boost to struggling German ecommerce investor Rocket Internet (Swiss: OXRKET.SW - news) , which holds a 35-percent stake in Delivery Hero, although its shares came under pressure on Wednesday after U.S. meal-kit provider Blue Apron Holdings Inc raised a third less than it had hoped in its IPO.

Delivery Hero priced its shares at the top end of the range on Thursday, meaning the listing is set to raise 996 million euros. Trading is due to start on Friday.

PREMIUM TO PEERS DUE TO BIGGER FOOTPRINT

The price means that Delivery Hero would trade at an enterprise value of about 10 times expected sales, assuming 50-percent revenue growth and zero net debt, according to Warburg Research analyst Lucas Boventer.

That compares to eight times for Just Eat and Takeaway.com, according to Thomson Reuters SmartEstimates.

"The premium can be justified. Delivery Hero has a much greater global footprint. They have more sustainable dynamic growth prospects," said Boventer, pointing to the firm's exposure to emerging markets as helping to drive growth.

By contrast, Just Eat operates largely in Britain, Takeaway makes most of its sales in the Netherlands and Germany, while GrubHub focuses on the United States and London.

Northern Trust Capital Markets head of tech research, Neil Campling, was more sceptical of Delivery Hero's investment case.

"We struggle to see a path to profitability for the business without the turning off the marketing tap which, if occurred, would likely lead to a significant reduction in order and revenue growth," he said.

Chief Executive Niklas Ostberg says Delivery Hero is still loss-making because it is investing in less mature markets and is spending more on marketing and expanding its own delivery unit Foodora, which delivers from high-end restaurants.

Concerns about high marketing costs and a lack of profitability also weighed on Wednesday on the BlueApron IPO, compounded by Amazon.com (NasdaqGS: AMZN - news) 's industry-changing deal to buy Whole Foods Market Inc (NasdaqGS: WFM - news) .

A person close to the Delivery Hero IPO stressed the differences, arguing that Blue Apron's subscription-based business model is less attractive than that of Delivery Hero, which generates income by taking a commission on meal orders.

Rocket Internet's meal-kit company HelloFresh, which has a similar business model to Blue Apron, is also preparing for a flotation, as early as this autumn if the Delivery Hero listing is successful, sources have told Reuters.

Taking Blue Apron's listing valuation of enterprise value at 1.9 times sales, Warburg's Bowenter said HelloFresh could be worth 1.6 billion euros, below the last funding round which valued the company at 2 billion.