Shares of SoftBank-backed THG are in freefall

British Prime Minister Boris Johnson (L) is shown around by The Hut Group founder and CEO Matthew Moulding (R) during a visit to a fulfillment center in Warrington, in north-west England on December 10, 2019.

BEN STANSALL | POOL | AFP via Getty Images

LONDON — British e-commerce company THG has said it knows of “no notifiable reason” for a 35% plunge in its share price on Tuesday.

The SoftBank-backed firm’s stock suddenly nosedived during late afternoon trade to notch its worst single-day performance since listing on the London Stock Exchange last September.

The move came following the company’s capital market day, which set out to reassure investors and analysts that THG could turn things around, with shares now down 65% since the turn of the year.

In his presentation, intended to assuage concerns and explain THG’s Ingenuity sales platform, CEO and founder Matt Moulding lashed out at short-sellers, but analysts were left disappointed.

In a statement to the market on Wednesday, THG added that “no material new information was disclosed at the event.”

“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 £958.8 million ($1.31 billion), +44.7% year-on-year,” the company said.

“The Group also has a very strong liquidity position as it enters its peak trading season, with available cash as at 30 September 2021 of £700.0 million across long dated 3-5 year facilities.”

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Although capital markets days are intended to help analysts and investors better understand certain aspects of a business, THG’s effort was “eye-opening for the wrong reasons,” according to Russ Mould, investment director at British online stockbroker AJ Bell.

“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,” Mould said.

“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.”

THG, previously known as The Hut Group, sells vitamin, nutrition and beauty products, running brands such as MyProtein, Lookfantastic and Mankind, while licensing out its technology. Its 500 pence per share IPO was one of the biggest technology floats of 2020.

Since announcing plans in September to spin off its beauty business in favor of focusing on THG Ingenuity — an e-commerce platform handling web sales and logistics for companies to sell products directly to consumers — the group’s share price has cratered.

SB Management, a division of Japanese tech giant SoftBank, announced in May that it would invest $1.6 billion into Ingenuity, giving it a 19.9% stake, while also taking a $730 million stake in THG itself.

A ‘conundrum for investors’

THG’s shares initially began to rebound on Wednesday, before falling more than 10%, and were down 4.6% by late morning. Mould suggested that the valuation following Tuesday’s freefall presents 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,” he said.

“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.”

THG Ingenuity initially prompted substantial excitement, with key clients including Nestle and Unilever offering it significant credibility for investors.

Mould suggested that a lot of product manufacturers now want a direct-to-consumer service, meaning the growth prospects for the business are theoretically strong.

SoftBank’s buy option values the Ingenuity division at £4.6 billion at current exchange rates, but at Wednesday morning’s share price, the entire group was valued at around £3.15 billion, Mould highlighted.

Mould said this would effectively mean investors could buy the beauty and nutrition operations while acquiring the tech and logistics offerings for “nothing.” However, the big question remains as to what each business would look like as a standalone entity in terms of cost base, capital expenditure and cash flow, he suggested.

“THG has been criticized 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,” he said.

Candice Cearley

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