to cheer you up if you need it12 Jul 2022 11:12
I received the following in a brochure from a large holder, where they give their thoughts on companies.
I have just copied a few bits.
That is all I am saying, it was written a month ago.
Draw your own conclusions but I thought positive, not saying any more.
In our view, the FY22 forecast is not demanding, after downgrades in 4Q21 management got the numbers in a sensible place with a further downward revision earlier this year. The reasons for the previous downgrades were 1) slightly softer than anticipated revenue growth, 2) whey protein powder cost inflation, 3) freight cost increases, 4) unfavourable FX moves (particularly Japanese Yen), and 5) wage inflation through staff hiring and salary increases.
On the wage inflation point, THG employed around 13,000 people at the end of 2021. They added 3,000 employees in 2021, 3,000 in 2020 and 2,000 in 2019, so headcount increase in recent years has been massive. Wage inflation for warehouse workers also increased dramatically in 2021. With revenue growth being softer than budgeted this wage increase was a significant drag on profitability.
There is now a hiring freeze so headcount in 2022 should be flat and perhaps modestly decline through natural attrition.
As for whey protein powder, the cost of this grew around 2.5x in FY21, costing £10s of millions of profit. Year to date, the cost of whey protein powder has fallen by around a third, so what was a headwind should now be a tailwind to profitability.
The weakness of the Japanese Yen was another significant hit to profitability last year. The Yen has weakened further but the move is much lower and, therefore, much less impactful so far this year than it was in 2021.
Consensus forecasts are assuming around 20% revenue growth in 2022. Whilst it's difficult to be too precise on the overall cost base it feels like costs should be close to 2021 levels. That being the case, revenue growth should be a tailwind to profitability so consensus EBITDA of £160 million, flat on 2021s figure, should be well underpinned. Hence the company's update today saying trading in line with expectations. The EBITDA forecast for next year is around £225 million.
The company currently has a market capitalisation of about £1 billion and is debt free. On this basis, the EV/EBITDA multiple is 6.25x FY21, falling to 4.5x FY22. This is exceptionally cheap for a global technology platform. By comparison Wm Morrison supermarkets was acquired by PE for 8.5x EBITDA.
That is your lot.
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