Another torrid day for THG as £800m wiped off value

Former retail phenomenon THG endured another torrid day on the markets as its share price crashed 21% despite reporting £500m in third-quarter sales.

It had £800m wiped off its market value during the day’s trading as its share price went into freefall, closing at 242p.

THG floated in September 2020 at 500p-per-share, rising to trade at nearly 800p at the start of this year, when its market cap got close to £10bn. Last night’s closing price values the group at less than £3bn.

Its share price had plunged 55% in the past seven weeks on the back of negative sentiment and a disastrous analysts’ briefing earlier this month.

That was followed by Tuesday’s 21% drop, which is indicative of nervousness about THG’s ability to generate profits at a level to merit its valuation.

Analysts have reviewed their expectations for the group, taking into account weaker results from the wider ecommerce sector. Rising prices, renewed competition from the high street, and high return rates have dragged down profitability, particularly among fast fashion brands including Boohoo and Asos.

Jefferies has cut its price target for THG from 920p to 700p based on it now valuing ecommerce stocks at a lower multiple of sales and enterprise value.

But James Grzinic, equity analyst at Jefferies, said THG’s sales update “should reassure on Ingenuity progress and the strength of the Softbank relationship”.

He said: “A slowdown in Nutrition sales looks matched by accelerating Beauty. But we note margin challenges from input and fx pressures.

“The strength of the Ingenuity revenue build should help bridge the valuation gap in the months ahead.”

THG has sought to reassure investors and respond to concerns. The group’s founder, executive chairman and chief executive Matt Moulding has given up his “golden” share, which gave him greater control when the retailer floated.

The arrangements currently prevent THG being listed in the FTSE listings, which the group plans to change in 2022. It has appointed an executive search firm, Russell Reynolds Associates, to find an independent chair for the company as part of its response to criticism.