Activist investor takes stake in ‘undervalued’ retailer
Activist investor Kelso has targeted TheWorks for its second investment, taking a 3.2% stake in the value retailer.
Kelso was launched last year to invest in stock market-listed companies where it identifies “an anomaly” between the intrinsic value and the stock market valuation.
TheWorks’ closing share price on Friday gave the business a market value of £22m – hugely below the £100m valuation when it floated five years ago.
The Coleshill-headquartered retailer now has 525 stores in the UK and takes around 12% of its sales online.
It generated pre-tax profits of £5m in the year to April 2023, after revenues increased 6% to £280m.
Kelso’s other investment is in technology and ecommerce specialist, THG, committing £5m in two tranches earlier this year. It was sitting on gains of around £3m in July, but THG’s share price fall since then has mostly wiped out these paper profits.
Kelso has invested £626,000 in its initial stake in TheWorks.
In a statement, it said: “Kelso believes strongly in the strategy and product range of TheWorks. Arts and craft, puzzles, games and books have an important place in life especially when focussed at the value end of the product spectrum.
“We are very excited about our new investment and helping restore the intrinsic valuation of TheWorks which we believe is significantly higher than the current price.”
The investment firm said it is “supportive” of the current board although it said it will vote against plans for a £1m dividend at next week’s meeting. Kelso believes the money should instead be used for a share buyback.
TheWorks was founded in 1981 and was bought by Hermes Private Equity in 2005 for £55m. However it became a victim of the global financial crisis, and was bought out of administration by Endless and retail entrepreneurs Anthony Solomon and David Luper in 2008.
It doubled its number of stores under Endless’s ownership and had nearly 450 when it went public in 2018.