RE: Kelso: Nutrition value? Mention 4.4x and 5.7x revenue multiple!15 Jul 2023 16:33
Just for balance, here’s what Paul Scott wrote on Stockopedia after the AGM trading update in June:
“Both management and shareholders seem delusional about what it’s worth, and don’t seem to have noticed that the irrational tech boom has ended (or has it?!) and that this isn’t actually a tech company anyway.
Today’s update says that guidance for FY 12/2023 is in line with broker consensus.
H1 adj EBITDA of £44-47m is up on £32m in H1 LY. However, EBITDA is nothing like real profit, or cashflow, at this company, so is best ignored.
Free cashflow is negative at -£(40)m in H1, and is ahead of (clearly not every ambitious!) expectations. Signs of life for the full year though - although this is lamentable for a company valued at over £1.1bn! -
*The Group remains well on track to deliver free cash flow neutrality[3] for the full year, with adjusting items materially lower than the prior year.
[3] Group free cash flow is calculated after working capital, net capital expenditure, adjusting items, tax and financing (prior to debt capital repayments and deferred consideration on acquisitions).
I’d want to see the full accounts before relying on any of these snippets in trading updates, given the rampy presentation of numbers in the past.
Good news on margins though, to be fair -
* THG Nutrition has had a particularly strong start to the year, with the pricing decision to support consumers through exceptional market-wide inflationary conditions in FY 2022 now paying dividends. Commodity prices continue to ease, with further margin benefits expected in H2 2023.
Outlook - also sounds more reassuring than what we’ve heard in the past -
* For the Group, Adjusted EBITDA margin accretion into FY 2024 and beyond will be driven by annualised commodity pricing benefits, ongoing automation efficiencies and operating leverage, in addition to normalised capital expenditure, underpinning positive free cash flow guidance for FY 2024.
The founder’s “special share” has been cancelled.
Paul’s opinion - no broker notes are available, but I can see from the StockReport that consensus is for continued losses after tax of over £100m in each of FY 12/2023, and £FY 12/2024. So investors are being asked to continue valuing a massively loss-making cumulatively business at over £1bn, in the hope that it can eventually reach breakeven.
I can’t see the appeal to that, but maybe I’ve missed something?”
Don’t shoot the messenger !
At least today’s update shows some progress is being made towards the goal of turning this into a viable business. Although it seems likely that achieving free cashflow breakeven, but still heavy losses on the P&L, must involve favourable but unrepeatable working capital movements from reducing inventories, I reckon.
As you can see, this was another utterly ludicrous valuation, pandemic era float, and it remains too expensive, even after this collapse in share price
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