Shares in online retailer THG came under further pressure yesterday despite assertions from the group that it knows of “no notifiable reason” for the plunge in its stock price late Tuesday afternoon.
THG, formerly known as The Hut Group, saw its market value slashed by more than a third after founder and chief executive Matthew Moulding failed to impress in a capital markets day presentation on Tuesday. Its share price – which fell by an initial 35 per cent as investors took fright – edged nearly 3% lower again yesterday, down 8.4p at 276.6p.
In a statement issued yesterday morning, THG noted the fall and confirmed that 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 that it has “consistently delivered ahead of its targets” since its flotation in September of last year, and that liquidity remains strong with £700 million of available cash.
The Manchester-based owner of online beauty and nutrition brands such as Zavvi, Lookfantastic, Espa and Myprotein came to the market with a bang in September 2020 in an IPO valuing the business at £4.5 billion. However, investor sentiment has been far more muted this past month after THG announced its first-half results and revealed plans to separate its Ingenuity technology division from its beauty and nutrition businesses.
THG Ingenuity, touted by Mr Moulding as a global retail technology platform, is used by customers such as Nestle and Homebase as a one-stop-shop to manage web sales and logistics on behalf of brands that want to sell direct to consumers. The spin-out plans are underpinned by a complex joint venture agreement with Japanese investment company SoftBank that values the technology division at £4.5bn, more than entire market value of THG following Tuesday’s crash.
A lack of detailed information about the division has raised questions about Ingenuity’s revenue streams and growth prospects.
Russ Mould, director at stockbroker AJ Bell, noted that the technology division was one of the reasons were initially excited about THG. However, the market now seems to be taking the view that the company was “grossly overvalued”, with a break-up creating more questions than answers.
“A lot of product manufacturers now want to go direct to consumer, which means the growth prospects for THG Ingenuity are theoretically good,” he said. “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.”
However, Mr Mould added: “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 the business without all the right information.”
Mr Moulding, who founded the business in 2004 selling tax-free CDs online, became a billionaire after the company’s flotation. The IPO also created more millionaires on its payroll than any company in UK history.
Scotland’s Sir Tom Hunter was an early backer of THG, with his West Coast Capital investment group taking a 3.75% pre-flotation stake in the business. According to information from Reuters, that now stands at 1.22%, or 14.85 million shares valued at approximately £41.1m at yesterday’s close.
Other high-profile backers included former Debenhams chief executive Terry Green and Sir Terry Leahy, the chief executive of supermarket group Tesco between 1997 and 2011.
In its interim results posted last month, THG reported widening losses despite a 45% increase in first-half revenues. Pre-tax losses during the six months to the end of June hit £81.3m, up from £49.9m, on revenues of £958.8m.
THG said yesterday that it “looks forward to updating investors in the ordinary course”, with a third quarter trading statement due on October 26.