RE: Ingenuity x Autostore - Pay per Pick Global Partnership10 Dec 2023 16:47
THG is effectively an eCommerec SaaS provider, recognised as a key, niche player in the Gartner eCommerce Magic Quadrant, that is greatly enhanced by providing logistics and warehousing services to its growing enterprise customer base. The nearest conceptual comparison to this model that I can think of is that of Amazon, providing the shop window and everything behind it to deliver to customers. The shop window is actually the easy part; international warehousing and logistics is an incredibly difficult thing to do well, as Ocado found out. On top of this business unit, core to both internal and external customers of THG as a group, there are the two trading arms of Nutrition and Beauty, both managing well established and recognised brands and worthy separate busineesses in their own rights.
To value the Ingenuity BU isn't strightforward, but Amazon trades on a price : sales ratio of 2.8 which with 750mill revenue in 2022 from internal and exernal customers (that would become all external on a demerger) would put it at 2.1bill. Where you'd pitch Beauty and Nutrition is again tricky but "one broker reckons that on a sum of the parts basis Nutrition is worth 1.8bill (2.5X sales) and Beauty 1.3bill (1x sales) ..." If you accept these you get an overall value of 5.2bill compared to today's capitalisation of a little over 1bill suggesting a fair value of somewhere around £4.25.
Ingenuity really is the star of the show and with the major infra upgrade roll out ending soon and free cash generation break even in sight the future for the platform looks excellent. Customers that buy into the whole soup-to-nuts, sales-to-delivery proposition would find it very hard to disentangle themselves again, I would imagine the average contract length is around 5years, and should therefore prove a sticky and reliable source of ARR which is why software valuations produce such stratospheric P/Es when profitable, which must be soon. To underline that, and admittedly in May 2021, but the Softbank proposition as per the RNS was for a "SBM option and collaboration agreement for a $1.6bn investment in THG Ingenuity, implying an enterprise value of $6.3bn for a 19.9% equity interest. THG Ingenuity comprises the Ingenuity platform IP and the Ingenuity operating trade and assets, which will be separated into a THG owned and controlled subsidiary capable of receiving the investment." Although we are in different times the platform is recognised by others as a bit of a gem......
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