Kelso on Thg30 Apr 2024 07:07
From Kelso Finals Today
THG
THG has three divisions: Beauty, Nutrition and e commerce fulfilment with revenues to 31 December 2023 of £2.2bn with continuing adjusted EBITDA of £120m. Consensus EBITDA to 31 December 2024 (source: company website) is £151m with the market capitalisation being c.£900m as at 31 March 2024. Within Beauty, it has three businesses: multi branded beauty and make up portals including Lookfantastic.com with 8.5m active customers selling multi branded products, an in-house and third-party manufacturing business and a number of owned beauty brands. THG also has the largest Direct to Consumer Nutrition business in the world selling an array of nutritional products mostly under the brand MyProtein. Finally, within e-commerce fulfilment, Ingenuity acts for in house and third party brands globally through a network of logistics facilities. THG was floated in 2020 with a market capitalisation of £5.4bn. Its value peaked in 2021 at almost 800p giving a market capitalisation of c.£8bn. On IPO and post listing THG raised c.£1.7bn.
In January 2023, Kelso initially bought 5m shares in THG at 55p, subsequently increasing this exposure to 8m shares, maintaining an average in price at around 61p. In the second half of the year, as we began to diversify our portfolio, we sold shares generating a realised gain of £0.9m. THG's share price at the end of 2023 was 85p resulting in a further unrealised gain for the year of £1.2m. Subsequent to Kelso's year end, THG's share price fell back to 60p at which point we bought a further 1m shares at 60p to give us 6.0m ordinary shares in total.
Kelso's investment thesis is that the valuation of the sum of the parts of THG is significantly greater than the market capitalisation. During 2023, we made several statements supporting this view urging management to demonstrate this value. The independent city broker Peel Hunt released an investment research note on 22 March 2024 in which it set a price target of 141p but referred to a potential value of 280p based on a sum of the parts.
We believe that each of either the Beauty or Nutrition division is worth at least the current market capitalisation. We hope during 2024 that THG will demonstrate this value through a strategic or corporate transaction relating to at least one of its three businesses. Separately, we believe that one of the most impactful and positive actions THG can implement is to move its listing on the LSE from the standard list to the premium index. THG currently has very few passive indexed holders and most UK active fund managers do not have to consider an investment in THG as it is not in their performance benchmark of the premium index. We hope that this change of index happens in 2024 either naturally through the FCA changes or that THG is proactive and makes the change of listing itself.
As at 31 March 2024, our holding was 6.0m shares with an average in price of 61p, valued at £4.1m, which represented 46
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