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  • Writer's pictureMark Watson-Mitchell

THG – are its quoted days numbered and just what is the Nestle, Coca-Cola and Mars connection?

A lot seems to be happening to THG (LON:THG), Matthew Moulding’s e-commerce retail group.

The big question now is – are its quoted days numbered?

Just read on.

So what does it do?

It is a vertically integrated, digital-first consumer brands group, retailing its own brands in beauty and nutrition, plus third-party brands, by way of its complete digital commerce solution, Ingenuity, to an online and global customer base.

THG's business is operated through the following divisions:

THG Beauty: a globally pre-eminent digital-first brand owner, retailer, and manufacturer in the prestige beauty market, it combines its prestige portfolio of eight owned brands across skincare, haircare, and cosmetics.

It offers a global route to market for over 1,300 third-party premium brands through its portfolio of websites, including Lookfantastic, Dermstore, Cult Beauty and Mankind and the beauty subscription box brand GLOSSYBOX.

THG Nutrition: this side takes in a group of digital-first Nutrition brands, which includes the world's largest online sports nutrition brand Myprotein, and its family of brands with a vertically-integrated business model, supported by global THG production facilities.

THG Ingenuity: this division provides a complete digital commerce solution for consumer brand owners across its three pillars of technology, digital and operations.

A quick share price recap

Floated in September 2020 at 500p a share, the then £534m loss-making company was valued at £5.4bn, which was more than three times its annual group turnover.

Within a few months its shares almost touched 800p as ‘market spin’ drove them higher.

That was January 2021, five months later the group tied up a deal with SoftBank, then one of the world’s leading technology investors, with a view to massively improving the business of THG’s Ingenuity division.

Softbank’s share stake by early June that year was 80.6m shares, which by then had eased back to 600p.

In response to a sharp fall in the share price, to 289p, the company put out a statement on 13 October declaring that it knew of no notifiable reason for such a material movement.

By this time last year, they had fallen still further to just 83p, before a swift fillip by late May saw them hit 152p.

In July last year the group announced that its deal with SoftBank was terminated.

A number of the group’s professional investors had subsequently lightened their holdings in its equity.

Early October witnessed the lowest prices for the group’s shares as they fell to a 31p low.

They more than doubled within the next month to hit 78p, before almost halving by late December to just 43p.

Over the three months to end March the price range wavered several times between 48p and 72p.

Now the fun starts?

Ten days ago, the shares were at 66.10p – that was just before an announcement last Monday from the company that it had received ‘a highly preliminary and non-binding indicative proposal from Apollo Global Management to acquire the group.

The shares lifted off, touching 97.74p at their peak before closing at 95.76p.

The next day the group declared its 2022 results showing record losses of £550m and a net debt of some £181m.

It also issued a Trading Update for the first three months of the current year, signifying that its expectations for its 2023 revenue and adjusted EBITDA are in line with the market consensus, despite the macroeconomic environment remaining uncertain, while its stable customer metrics give it confidence.

The company also stated that it reiterated its expectation of being free cash flow neutral in FY 2023.

It also noted that the Rights attaching to the Special Share are set to cease in September this year, which would support a move to the Premium segment of the Main Market, subject to completion of FCA listing regime review.

By the end of last week, the shares had ranged from 75.62p to 89.20p, at which they closed on Friday night.

So what is happening?

What we do know is that several companies have been particularly interested in a play for THG.

Names in the frame over the last year or so have included hedge fund King Street, THG’s main board director Iain McDonald’s Belerion Capital, even Nick Candy has been mentioned.

Recently declared players include former Elliott Advisers executive Franck Tuill’s Sparta Capital and John Goold’s Kelso Capital, who it is said last week increased its equity stake to 8m shares.

Kelso’s suggestion

Apart from ex Zeus CEO Goold and ex-Hanover Catalyst fund manager Jamie Brookes, who are the two biggest shareholders, Kelso has a number of big name players in its own recently formed equity – including the entrepreneurial investor Nigel Wray, Gavin Petken (BGF Investments), Martin Bolland (Capita), Luke Johnson (Risk Capital), Roger MacDowell (Avingtrans), Paul Hogarth (Tatton Asset Management), Umar Kumani (Pretty Little Things) and Edward Woodward (Manchester United) amongst many others.

Goold believes that THG’s nutrient business has significant intrinsic value due to the shift in consumption away from chocolate and sugar to health and nutrition.

Kelso has identified 12 global food and beverage companies that it believes are overly focussed on sales of chocolate or high sugar content products – they are Nestle, Coca Cola, Pepsi, Mondelez, Mars, Hershey, Ferrero, General Mills, Lotus Bakeries, Monster, Kraft Heinz, and Keirig Dr Pepper.

In the event that the Apollo approach does not proceed, THG’s MyProtein division, says Goold, should be separated from the main grouping alongside a potential partnership and minority investment from any such companies as those just listed.

Will others want to join the party?

Investors are suggesting that although the group’s real value is significantly below even its current market capitalisation of £1.16bn, the rumours persist that other global private equity houses are taking an interest in the goings-on.

Are other such investment groups prepared to commit billions in bidding for the group and then refinancing its development?

Could the way the market plays the group’s shares this week give an indication of THG’s future?


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