Hunter punt THG loses third of value as shares fall
Early investor: Sir Tom Hunter
Shareholders in online retailer THG, whose early backers included Sir Tom Hunter, saw the value of their holdings plummet by more than a third after the former stock market favourite raised concerns over its strategy.
Shares in the company, formerly The Hut Group, fell 34.75% on Tuesday from Monday’s closing price of 437p, to close at 285p, wiping £1.85 billion from its value to leave it worth £3.48bn.
Among the firm’s early investors was Sir Tom Hunter, who took a 3.75% pre-flotation stake in the business. As of last December, when his accounts were published, he held a 1.96% stake, valued at the time at £130m. He planned to transfer profits to his charitable causes.
He sold more shares in January, leaving him with 14.8 million worth £113 million. His current shareholding was not disclosed, though according to data and news service Reuters, he holds 1.22%, or 14.85 million shares valued at approximately £41m at today’s closing price of 276.6p.
Other backers included former Tesco boss Sir Terry Leahy, ex-Debenhams chief executive Terry Green and entrepreneur Oliver Cookson.
The Manchester-based e-commerce company floated last September at 500p a share as it drew an army of supporters and claimed to have made more millionaires on its payroll than any company in UK history. Founder Matt Moulding, who set up the business in 2004 selling tax-free CDs online, became an instant billionaire on the flotation.
But it has tumbled since announcing results for the first half and announced plans to split off its Ingenuity technology division from its beauty and nutrition divisions.
The company held its first capital markets day yesterday to brief shareholders.
Reports that Japanese bank Softbank had informed the company it would not exercise an option to invest further in its tech business have been denied and that it was on track to do so in the first half of next year.
This morning the company issued a statement to the stock market saying it “knows of no notifiable reason for the material share price movement, and that no material new information was disclosed at the event.”
It added: “Since its IPO in September 2020, THG has consistently delivered ahead of its targets set at the time of IPO and recently reported a strong first half performance across all divisions, with Group revenue of £958.8m, +44.7% YoY (CCY).”
THG came to market with a two-pronged business, the first being an online retail operation which includes its own brands such as ‘My Protein’ and a group of beauty and grooming brands.
The Ingenuity unit is its technology arm, designed to be an e-commerce intermediary for third-party sellers to execute digital sales.
The plan was to spin-off the product-retailing aspects of the business to focus on the e-commerce platform as a technology partner to third-party brands. Plans are already under way for THG Beauty to float on an exchange in its own right next year.
Part of the reason for Tuesday’s sell-off appears to be a lack of further information from THG regarding any of the major clients using Ingenuity to support the business case for the unit.
Russ Mould, investment director at AJ Bell: “Capital market days are meant to be informative events, helping analysts and investors better understand a business.
“In THG’s situation it was eye-opening for the wrong reasons. It seems that attendees didn’t get the level of information they wanted, and messages were quickly fed back to HQ to dump the stock.
“Having joined the stock market with a lot of fanfare, the market now seems to be taking the view that THG was grossly overvalued and that breaking the business up creates more questions than answers.
“The shares initially rebounded on Wednesday after yesterday’s slump, but quickly went back into freefall. This creates a conundrum for investors.
“On one hand, sentiment is incredibly weak towards the stock and there is no point going against the flow if the market has decided THG is a dud. On the other hand, investors are now being given the chance to snap up shares in a business at a price where the original source of excitement is now essentially thrown in for free.
“One of the company’s divisions called THG Ingenuity was the reason why the market was initially excited about the business, a one-stop-shop that handles web selling and logistics, aimed at brands that wanted to sell direct to the consumer. Nestle is a key client, giving THG some credibility.
“A lot of product manufacturers now want to go direct to the consumer, which means the growth prospects for THG Ingenuity are theoretically good. In fact, Next is even going down this route as a rival provider of web services and logistics to third parties such as Victoria’s Secret and Gap in the UK via its Total Platform proposition.
“In May, Softbank bought an option to buy a 19.9% stake in THG Ingenuity that values the division at $6.3 billion or £4.6 billion at today’s exchange rate.
“With the shares now trading at 258p, the whole of THG is being valued at £3.15 billion, meaning investors can effectively buy the beauty and nutrition operations and get the technology and logistics bits for nothing. If that was the sales pitch when it floated, there would have been a large queue around the block to buy the shares.
“The big question is what each business would look like as a standalone entity, namely the cost base, capital expenditure and cash flow.
“THG has been criticised for not being open enough about the financial breakdown. Until it starts providing some answers, the shares could well remain under pressure as it’s very hard to properly value this business without all the right information.”