It was less than three years ago, in September 2020, when Matt Moulding floated his beauty and nutrition consumer brands company The Hut Group.
At that time existing holders sold off some £961m worth of the group’s shares, while the company itself raised £920m to boost its cash coffers – valuing the entire enterprise at £5.4bn.
The Offer price of the shares was 500p.
Moulding, who was then described as the founder, CEO and chairman of THG commented that:
"I am delighted that THG has received such strong support from some of the world's largest investors, which means we have been able to achieve a highly successful Offer of shares in the Company.
The results of the Offer are a clear validation of our business model, significant growth prospects, and recognition of the hard work and talent of all our colleagues.
Our flotation is the start of an exciting new phase in THG's development and we look forward to sharing that journey with our new shareholders."
What would they say today?
From a peak of nearly 800p achieved in January 2021, the shares fell to a low of 31p in October last year.
Since then, they have regained some of that massive fall.
Just this year alone they have put on over 50% to the current 65p, valuing the group at some £942m.
Citigroup, JP Morgan Cazenove, Barclays, Goldman Sachs, HSBC, Jefferies, Numis and Rothschild were all big fee-earners through the new issue.
I wonder what those companies involved in the float would say about the value today?
The Business
Founded in 2004, the Manchester-based THG (LON:THG) operates as an e-commerce technology company in the UK, the US, Europe, and internationally.
THG is a vertically integrated, digital-first consumer brands group, retailing its own brands in beauty and nutrition, plus third-party brands, via its complete digital commerce solution, Ingenuity, to an online and global customer base.
Group Operations
THG's business is operated through the following divisions:
THG Beauty: The globally pre-eminent digital-first brand owner, retailer and manufacturer in the prestige beauty market, combining its prestige portfolio of eight owned brands across skincare, haircare, and cosmetics.
It is 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: A group of digital-first Nutrition brands, which includes the world's largest online sports nutrition brand Myprotein, and its family of brands (Myvegan, Myvitamins, MP Activewear and MyPRO), with a vertically-integrated business model, supported by global THG production facilities.
THG Ingenuity: Ingenuity provides a complete digital commerce solution for consumer brand owners across its three pillars of technology, digital and operations.
Being part of the THG group, a global digital brand owner in Beauty & Nutrition, Ingenuity is uniquely placed to bring relevant, practical, and international expertise in every area of commerce.
Sales per Business and Region
In the 2021 trading year the group’s sales were £2.18bn.
On a per business basis: Beauty represented 51.3% of sales, Nutrition 30.3%, Ingenuity 8.9% and other parts made up the balance 9.6%.
On a per region basis: the UK accounted for 41.7% of sales, Europe 21.0%, the US 18.6%, while the Rest of the World took the balance.
For the 2022 year, ahead of the finals being announced next week, it is anticipated that Beauty handled 52.6% of its £2.25bn group sales, Nutrition 29.8%, and Ingenuity 9.2%, with OnDemand and Other making up the 8.4% balance.
Why Invest in THG?
The group answers the questions why investors should be interested in THG by stating that:
“We are a global digital innovator revolutionising how brands connect to a worldwide consumer base.
We are transforming how consumer brands go to market in the digital age.
Through our proprietary platform Ingenuity, we are providing a simpler, integrated and frictionless retail experience for consumers and brand owners.
We are democratising online retail – overcoming its structural technology barriers by enabling brands and retailers to have direct relationships with consumers, improving accessibility.”
The Equity
The group has almost 1.3bn ‘A’ shares in issue.
Matthew Moulding owns 13.3% of the equity, while other larger holders include Sofina SA (8.89%), Balderton Capital (7.46%), Qatar Investment Authority (7.32%), Jupiter Asset Management (4.77%), Teachers Advisors (2.62%), Goldman Sachs Asset Management (2.53%), T Rowe Price International (2.29%) and The Vanguard Group (2.16%).
Activists in the ranks
It has been reported that Franck Tuil’s Sparta Capital, the activist fund management group, has recently built up a position in the THG equity. The former Elliott Advisers executive spiked some action on Wood Group ahead of its 60% premium takeover offer.
Kelso Group Holdings, run by John Goold, last week stated that his company had recently added another 2.4m shares in THG, taking its holding up to 7.4m in total.
Admittedly he was ‘talking his book’ but Goold stated that:
“The current stock market conditions suit our strategy of finding undervalued situations where we believe through our focused efforts, we can help unlock value.
We continue to believe that THG represents a great opportunity to make significant returns for Kelso shareholders.”
He is urging THG to review its strategic options, alongside focussing on cash generation and has asked THG to consider a share buyback programme, because he views THG’s share price as ‘undervalued’.
Kelso also wants THG to move to a premium listing on the LSE from its current standard listing.
“We believe that 2023 will be a positive year for THG as many of the operational headwinds experienced during 2022 continue to reverse.
Whilst we commend THG’s board and management’s efforts, we believe there are more actions they can take to ensure the share price reflects what we strongly believe to be intrinsic value.
Specifically, we would like to see the board deliver on commitments made to investors.”
Social Media
51-year-old Moulding, who is reported to have contributed £300,000 to The Conservative Party, was invited to No10 Downing Street as a guest of Boris Johnson when he was Prime Minister.
His bare-chested and very fit torso has been featured frequently whenever he or THG becomes an item of media news – so too his cars, house and Sunseeker yacht.
On social media he has been winning friends and influencing people by quipping that he regrets having gone public in the UK and would have done better by going for a quote in the US markets.
“The way we have been treated since joining the London Stock Exchange has done nothing but add fuel to our insatiable fighting spirit. It’s certainly not an experience I’d recommend.”
£150m Maximo deal
Late last week the group announced a 10-year strategic partnership with Maximo, the beauty e-commerce retailer.
The 10-year partnership will initially focus on re-platforming All Beauty and Fragrance Direct to the Ingenuity platform, as part of Maximo's strategic growth plans.
THG Ingenuity will also become Maximo's key UK operational partner, providing warehouse and fulfilment services from Q2 2023.
The end-to-end technology and fulfilment services agreement encompass: website services including design, build, hosting and maintenance; warehousing and fulfilment services; and end-customer delivery services via THG's network of global couriers.
The partnership is expected to add in excess of £150m gross merchandise value to the Ingenuity platform annually, with the ambition to re-platform the site by the end of Q2 2023.
Finals due next Tuesday
For the third time in a year, the company in mid-January again disappointed investors and guided that its adjusted earnings for 2022 are now expected to be in the range of £70m to £80m. It previously forecast earnings of as much as £130m.
The year to end December 2022 is expected to show a 4.1% rise in group revenue to £2.25bn, we shall see just what the outcome was next Tuesday when the group reports its 2022 finals and also issues its Q1 2023 Trading Update.
Analyst Opinion – consensus 54.4p Target Price
With 12-month Target Prices ranging from 35p to 85p the average analyst consensus view for the shares is 54.4p a share.
Even after the Maximo news Wayne Brown at Liberum Capital maintained his 55p Target Price on the shares.
He has stated that:
“THG shares continue to attract investor interest, and rightly so given the quality of the underlying businesses.
We think free cashflow generation remains central to driving the shares from here on.
Even at target margins, THG would generate low free cashflow yields on the current share price.”
Last September, on the interims, Russ Mould at AJ Bell noted, that having reported record first-half revenues of £1.1bn, it is still making an operating loss as costs have been rising and margins have been squeezed.
“THG boasts of a loyal customer base but when it sells commoditised products, this loyalty is going to be tested as consumers look hard for ways to save money – and that could mean buying their protein or beauty products from somewhere else.”
On a Technical Analysis basis the group’s shares appear to be a Strong Sell on its Moving Averages and similarly so on its Technical Indicators.
Conclusion – volatility creates dealing opportunities
With the 2022 finals due to be announced next week, together with the group’s Q1 Trading Update, the company will undoubtedly garner further investor attention.
It is hoped that many more Maximo-type deals are to be negotiated and concluded, because surely 2023 will continue to see the group enduring tough trading.
There has been talk of separating various parts of the company, with a view to boosting current valuations – we shall have to wait and see what actually transpires.
I cannot state that this group’s shares at 65p show any real investor value, however, its price volatility creates masses of dealing opportunity for alert players, they could easily hit the 80p level in reaction to further good news.