THG losses prove hard for market to swallow as shares spiral

THG’s share price took a tumble to 65p yesterday before recovering to end the day’s trading at 72.58p, which valued the ecommerce retailer at below £1billion, a huge drop from the £5.4bn valuation it enjoyed when it floated on the stock market in 2020.

Chief executive Matt Moulding tried to steer the market towards ‘adjusted EBITDA’ and cashflow in yesterday’s half year results, which also featured an admission that its sales forecast would be lower for the rest of the financial year.

He was also pleased about the high value clients the ecommerce engine Ingenuity had secured, and a rating by tech consultancy Gartner.

However, in his now customary accompanying LinkedIn post, he claimed the media wouldn’t report his ‘good news’.

At the analyst conference yesterday morning Moulding fielded largely technical softball questions about the competition, but did discuss the break up value of THG and admitted that any potential merger activity was unlikely while THG was trading at such a low multiple.

Activist investor Kelso, which has been urging Moulding to build up the value in the business was left frustrated.

In a market statement yesterday it said they were “generally pleased with the operational and financial performance” of THG, however, “the lack of strategic update is disappointing.”

In particular the Kelso statement said it was concerned the issues it had previously raised, such as a move to the premium segment of the market, and clarity over the medium term structure of the business as a whole.  

“There is no mention of plans for the medium-term structure of the business or regarding the move to the Premium Segment of the London Stock Exchange. These matters are important to shareholders; we think that today’s material share price fall is due to the lack of clarity on these plans. Several comments were made in the Q&A meeting this morning around the potential future structure of the business which we believe would have been beneficial to be included in the Interim results,” Kelso said.

“Kelso believes the true value of the group will only be realised when THG Nutrition is divested, albeit supported by Ingenuity, whether majority owned by THG or not. We have said before that we believe THG Nutrition has a value significantly more than the current market capitalisation, and plays strongly into the global trend for large snack companies to diversify into healthier products. Given the significant recovery in THG Nutrition this year, we believe that now is the time to be exploring the strategic options around this business.”

The statement concluded by claiming that shareholders would appreciate an update regarding the potential move to the Premium Segment as most UK active fund managers and index funds are benchmarked or indexed against the Premium Segment and so do not consider shares listed on the Standard List, as THG currently is. 

“Moving to the Premium Segment would force these funds to consider THG.  As a result, we believe that THG should embrace the UK stock market and move as quickly as possible to the Premium Segment, regardless of future potential changes that may be brought by the UK Listing Authority.”

The markets weren’t impressed with the results, as AJ Bell investment director Russ Mould explains: “Digital commerce platform THG continues to face an uphill battle to be seen as a credible business with the market.

“Another period of operating losses and with more moving parts than a Swiss watch, it’s no wonder that investors struggle to get their head around exactly what this company is trying to do. The word ‘adjusted’ is used 118 times in the half-year results, which says it all.

“The nutrition business looks to be improving, helped by inflationary pressures easing. It wants to build sports nutrition brand Myprotein into a global lifestyle brand – notably, this part of its business has been the focus of activist investor Kelso which has called it one of THG’s undervalued assets.

“THG seems to realise that something has to change if it is to win over the market’s favour, hence the recent disposal of two loss-making businesses. That reinvention journey needs to speed up if it wants the share price to move higher. As it stands, the latest results went down like a lead balloon with the market, the shares falling nearly 18% in the first hour of trading.”