Member Info for Kando

I think that's fair Steve, but I honestly don't think there's anything material re: strategy to come. I'm not really sure what people are expecting. I think the "strategy" going forward is to try to move on and row back from Moulding's - at the time irritable and impetuous - intimations that he might take it all private, or to spin off and relist beauty (at least any time in the near term); because, at the time, he was upset about the collapsing share price. None of those actions he suggested make much sense in the current market, other than that which they've already done, which is to internally separate the component divisions. The strategy going forward will be to carry on with what they laid out at IPO. Expanding the offering, revenue growth and continuing the path to profitability. In spite of any interviews in GQ, that's all the company's done - continue to deliver on IPO forecasts. I hope and expect that to continue. The rest, as Charles Allen says, is really "flim flam".

Beauty may, one day, get its own listing, but it certainly isn't happening in today's market. It's not even clear whether it's the right thing to do. Yes, separate listings tend to outperform the market in the years following separation, but ultimately their true valuations catch up and they'll reconcile back to where they would have been had they remained together. It's like asking why Amazon didn't spin off AWS, or why Ocado didn't spin off the tech from the grocer. It doesn't always make sense to.

"It’s what the mouldings want, PI’s fleeced"

That's a fascinating insight.

"I feel they should address the current share price. It’s starting to feel like us PI are being left in the dark. It would only take a few simple sentences"

What's to address? They said 170p undervalued the business. Is it not fairly safe to assume what they think about 57p?

"Anything K"

Maybe tonight's football scores?

"I'll take it right now!
IR are shocking
This management is shocking
MAKE A BLOODY ANNOUNCEMENT"

An announcement about what?

Good post pencil. I've posted before how I anticipate these macro conditions will actually be positive for THG. DTC will start to feel like the only recourse for many struggling retailers. At the very least it's going to mean THG and THG clients gaining market share through price control vs brick and mortar dependent peers.

Hah, Rodney! Perhaps you could, for the greater good, try selling some, then we might be able to watch it double, then double again.

"18% inflation expectation, interest possibly going to 7%, 45m consumers in energy/fuel poverty, do you need more"

Only how that translates to this company. You could post that on any stock, why here in particular?

Beauty and health spending tends to increase in recessions. Consumers forced to forego big luxuries settle for smaller ones.

Great post Canary.

To add to that, I think, in a contrarian sense, that THG's offering could do well, rather than flounder, in this much feared high inflation/recessionary macro environment. It's been mentioned here before, but the Lipstick effect is a genuine and dependable phenomenon. THG's entire brand portfolio, including the sports nutrition side, falls into that discretionary self-care/beautification category that historically has been shown to have grown strongly during every recession since the great depression. If the consumer can't afford big ticket luxury items anymore, they settle for small luxuries. Further, when economic times are tight, single folk, especially women, feel a greater urgency to find a partner, ultimately for financial support, and that drive manifests itself through increased spending on cosmetics and fitness products.

Inflation-wise, if THG can maintain pricing power, via the tailwinds provided by the above effect, while also minimizing underlying cost increases relative to the competition via automation and scale (and not really having a product offering that's especially energy intensive to produce), then I think there might even be a narrow path through all this where revenues rise faster than inflationary pressures push up costs, and margins, counter-intuitively, improve, rather than fall, in all this.

It's wishful thinking, probably, but it's possible.

"Any thoughts on why SP continues to tank, even with shorts reducing?
Just macro-economics and a brutal day in UK retail equities…?"

More or less. I think Citi's 18% inflation forecast coupled with this morning's 20% jump in european natural gas made it a very much risk-off day so there aren't many eager buyers, at any price.

If it's this product from Amazon Steve (I'm not sure if I can post links here, but I'll put it below), it says in the product description it weighs 1kg, and a top review says he thought he bought 5kg, but received 1kg. So I wouldn't be so sure you've just got 5kg for £36, it looks like a misleading title/error. Seems unrealistically cheap given current whey prices. Have you just purchased it, or already received it and know it's 5kg?

https://www.amazon.co.uk/My-Sports-Fuel-Chocolate-Premium/dp/B016D6C5HA

I feel in hindsight this period might be viewed as the point of capitulation for this stock. The volumes being sold at or near all time lows, which value the company at not much more than inventory and cash on hand- essentially pricing it for failure, would hint perhaps that this is likely at or near the peak of irrational (and rational) fear that usually characterizes the bottom of a market. Eventually it's going to run out of fearful money and distressed holders willing to dump. If the risk of failure were as high as the market is ostensibly pricing in, then the ratings on their corporate bonds have been mispriced by the ratings agencies (granted not an impossibility), given they're in a ratings group with an annualised default rate near 2%, and given that the bulk of THG's debt doesn't begin to mature for another 3-4 years anyway.

"What are your thoughts on Jupiter selling down? And also on the SoftBank relationship, now the option is terminated mutually by both parties?"

Well the SoftBank deal was DOA by the end of 2021 anyway. It should have come to no surprise to anyone. Even were the THG share price not where it is, SoftBank are in no position to have exercised the option anyway. The Softbank division that signed the deal doesn't even exist anymore.

More or less similar sentiments about Jupiter. You can't take these sales personally. It's not always an indictment on the company that they're selling shares of. They have their rules: their "if in danger break glass" fail safes and they've seemingly had them triggered by the way they'd performed more broadly in the market, of which THG is only a small part. They're selling down because they must, not because they necessarily want to, but because their risk management rules compelled them to. Ultimately it's only their customers' and clients' money they're realizing losses on, they just need to live to fight another day so they can continue to collect on their management fees. It's nothing personal and it won't just be THG shares that they're selling.

"I take your point of short vs long term approach and do agree long term is of course better but it could be good to find efficiencies vs q1 guidance to help preserve cash and improve profit"

I think they'll be doing that as well, as much as is practicable, but winning and keeping customers and clients is built on quality of service, and that often requires staff to provide that service. Yes, staff cost money, but they're the most integral part of the business, enabling it to actually function and deliver the platform and product as sold. I don't get the sense that they need to trim staff counts, but rather, carry on generating continued growth that scales favourably against the size of the workforce going forward.

To me, it looks like they have more than enough cash at current and forecasted burn rates to last them 2-3 years at a minimum - further acquisitions not withstanding (which right now, wouldn't be advisable) - at which point the numbers suggest they ought to scale into profitability organically. I just don't see the hurry, as trying to accelerate the process will only damage the long term to fluff out a couple of near term quarterlies.

Thanks Steve.

"Where do you see the H1 results in terms of topline, ebitda and ingenuity clients/ revenue?"

I honestly don't know, steve. Given that Allen and Moulding both bought leading into it, I might be inclined to (perhaps wrongly) infer that it looks like at least a broad meet, if not a beat. They will obviously be working hard to pump the sales, this quarter more than any other before it, because they know now that trading out of this morass is the only sure path available to them. There are no smoke and mirrors to hide behind in this unsympathetic macro environment and a revenue miss is the worst sin.

I would guess, and it's just a guess, that they'll be (modestly) pumping the marketing spend and going (slightly) more aggressive on discounting to get the revenues, customer #s and basket-sizes to meet or exceed. As a result, perhaps margins and ebitda may miss or underwhelm, but maybe not. It's almost impossible to know without seeing the books, obviously, but the mood music from the company is that it's not an update to be particularly fearful of. They're not panicking; they're not trying to defend their wounded honour or take on the world in the press; they're just buying more shares. That to me suggests they're comfortable and that Moulding has learned to be mostly indifferent to the (what initially clearly seemed to him grossly unfair) vicissitudes of having a publicly traded company. He's not looking to sell, and he can see that in a few years, the company will have weathered the storm and continued growing and building market share throughout.

On Ingenuity specifically, again, I can't really guess, but I feel it, too, will probably meet or beat. Storeleads tracking data (for what that's worth) seems to show an acceleration in new Ingenuity sites this quarter and with Matalan coming online later in the year, that should translate to decent numbers on the H1 books and decent forecasts going forward.

More generally, the current trading environment looks like it would lend itself quite favourably to Ingenuity. If companies are struggling with their own margins in this inflationary spike - outsourcing is very often the answer. If through economies of scale, automation and specialization THG can build and maintain their online storefront and logistics cheaper than they can currently do it themselves, there's going to be a large subset of businesses large enough to generate significant online sales, but not big enough to sustain the cost-increases (wages + fuel) of handling their own logistics setup. So my instinct is that Ingenuity growth will increase in this period, not slow. Matalan embodies that. They were struggling on margins and getting their online presence firing on all cylinders, and they were looking for a solution. THG, to them, was the solution. Other retailers are struggling too, and if it made economic sense to Matalan, it may well make sense to them as well.

"Would love them to kull their workforce - the increase in staff costs was high in the FY vs growth
Then kill off the vanity projects (hotel/ spa), reduce expansion cap ex to be more inline with 20% growth yony ie do not need 13bn GMV etc and rise prices to deliver a big beat on ebitda margins. The market will forgive topline miss for bottom line beat I think"

Yeah, no, none of that please. You want them to sack long term growth for short term optics. To pump a transient uptick in the SP so you can offload the bags you're (obviously very reluctantly) carrying.

Talking about share buybacks when a company is not yet cash generative is fairly absurd. If there is any surplus cash, and the company avoids needing to raise any further capital to continue operations (which thankfully appears likely even under Barclay's most pessimistic forecasts of projected cashburn), I'd much rather that hypothetical excess cash were spent on further productive acquisitions. Share buybacks are for companies with huge cash generation but few possibilities or ideas for future growth. THG has neither. It's not yet generating cash but is focused on continued and rapid revenue growth, as it should be.

If the press couldn't wrap their heads around Moulding buying shares on behalf of his family and friends, or the concept of him giving pledged money to charity, without painting him as a peculiarly sinister unhinged oddity, then how do you imagine they'd run with a cash burning growth stock ****ing money away it needs to survive the next 2-3 years on buybacks? They'd (this time, rightly) have a field day.

"MM has put the business up for sale. At the time of the 170p bid, he said he’d accept 2bn."

He didn't, but don't let truth get in the way of a good yarn.

I think the bid talk is really best put to bed, with no extensions. A bid likely to succeed isn't realistically forthcoming and the longer it goes, the more likely it is to sour sentiment again, unnecessarily. The weighting being accorded to it is overstated. Once the put up or shut up period ends, the company can push on, with much needed scope for greater transparency.

What powers the share price from here, in addition to the continued revenue growth, is the separation - if it's still happening, and the long term strategic plan - if there is one, which it's fairly clear there is. They've still yet to inform the market on the technicals of what they've been teasing for 9 months now. A huge component of the share price weakness, which contrived to produce this whole buying opportunity for most people here, was the lack of clarity over value. With the incessant chatter around, and the actuality of, rebuffed bids, the company has not been free to talk about anything of substance that might be useful to pricing the assets.

Statistically, separated companies outperform the market for many years post-separation, so while it's not sine qua non, it would create a tailwind to shareholder value. Similarly, it ought to allow the market to more accurately price the component parts - if Beauty and Nutrition are paying Ingenuity for use of its platform, it more accurately presents the capacity and revenue potential of Ingenuity. It'll also allow the market to see, via Beauty and Nutrition's costs, just how cheaply and efficiently Ingenuity can deliver for businesses of that size, creating more public and visible enthusiasm for the product.

I know I've said it a lot now, but a takeover or take-private at any multiple today's PE market is realistically likely to offer is a poor outcome for holders here. I think it's similarly a poor outcome for Moulding and the holders closest to him, that's why I've always felt like it was also incredibly unlikely. So, as long as it continues to be an unlikely outcome, it's best being put aside and the company be unencumbered to carry on towards its long term strategic goals.

I'd also hope to see some director/insider buying once the bidding period ends - that will be very positive momentum-wise for the longer term uptrend - which (I know I posted it already today) we bounced off of earlier: https://www.tradingview.com/x/JU4IXr5f/ - so we're still holding on to that uptrend, as much as the last few weeks may have felt otherwise to some more nervous holders here. Keep positive. For the most part, the state of the markets caused this retesting of support, not anything specific to the company - beyond the gradual wilting of takeover speculation, which as I said at the top, I feel has been overstated.

In terms of technical support, we're sitting at it:

https://www.tradingview.com/x/JU4IXr5f/

If it holds, everything's fine; the current uptrend will be maintained.