THG backer Kelso pushes for demerger to trim "inherent" valuation gap

(Alliance News) - THG PLC investor Kelso Group Holdings PLC on Thursday reiterated its call for a demerger, which the shareholder believes will help close the "disparity" between the e-commerce firm's share price and its true value.

Kelso said that the e-commerce, cosmetics and nutrition company is significantly undervalued by the market, and urged the Manchester-based firm to "do everything they can" to address this.

Kelso, which owns a 0.6% stake in THG, thinks this can be achieved by a separation.

Kelso outlined its conviction in the "substantial value creation opportunity" at the company. It believes THG's sum of parts is well above its current market valuation.

THG, which floated in 2020 with a valuation of some GBP5 billion, has since fallen to a market capitalisation of around GBP1.03 billion.

Throughout the year, Kelso has argued that THG's Nutrition business alone could be worth more than the entire company's market capitalisation.

Kelso pointed to the fact that the company's larger global peers in nutrition and beauty trade on chunkier valuation multiples than THG does.

To resolve this disparity, Kelso has pushed for a demerger. This would "allow each part of the business better access to capital to deliver further growth and build upon their market leading positions".

Kelso cited Whitbread PLC's successful demerger of Costa Coffee in 2018 and GSK PLC's consumer healthcare business Haleon PLC in July 2021 as inspiration to draw on.

Kelso said that the UK stock market would not ascribe a sum-of-parts valuation to THG "until the company publicly confirms its intention to demerge its businesses".

Kelso also warned THG it could be in play for a takeover tilt. Kelso cautioned on the prospect of an opportunistic bid given the THG's low share price, arguing that a "supportive shareholder base" was essential to mitigate this risk.

Kelso Chief Executive Officer John Goold stated: "We believe that the market would respond well to a formal confirmation of a demerger of THG... We hope that THG adopts our beliefs and announces a strategy for the demerger of its three stand-out global businesses without further delay."

THG's founder and Chief Executive Officer Matthew Moulding recently acquired a 3.2% stake in Kelso Group.

THG made its London Stock Exchange debut back in September 2020. Life as a listed company has not been plain-sailing for the company since then.

Shares floated at 500 pence each. The stock rose 0.8% at 78.98p each in London on Thursday afternoon, some 84% off its IPO price.

Kelso traded 3.4% at 3.05p each on Thursday.

By Hugh Cameron, Alliance News reporter

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