Member Info for Okehurst1

Pt 2

THG have just opened their 3rd USA fulfilment centre in March USA showed nearly 10% growth and that’s without this new unit , they have 16no worldwide total

The new USA centre in New Jersey can robo pick / package 540,000 orders a day, 30% of all orders globally are robo picked / packaged
This is where the cash has gone bar £1B on Beauty platforms/ manufacturing plants at the time of the IPO, they have built a global network

Re - production , they also purchased their own manufacturing plants, Nutrition produces in house 70% of all products it sells - and growing - Beauty is close to 20%

Why would USA PE want THG? And at what price
The FT have THG enterprise value at £3.7B vs £1.45 debt / Mcap

Take Apollo, they will look to fund Ingenuity and push as much of their other assets to use the Robo services
With Ingenuity funded the 2 Core businesses can invest in growing, both are currently number 1 in the world in size pure D2C Nutrition & Beauty

Pt1

In last 26 weeks, THG generated £70M FCF at group level
It has net debt of £180M with £40M of property disposals in the pipe

Nutrition will generate £675M 2023 @ 7.5% EBITA
Beauty. £1.3B. @ 6%

This after they have paid Ingenuity their fees - Ingenuity pay the rent on the buildings

With net debt of £140M their annual bond payment currently £60M a year will of course fall in line - they have £400M ish of cash on the other side of the balance sheet

So with no rent and let’s put 10% on £140M it’s £14M interest, the EBITA is net profit after debt ,they have £2B of tax losses made up of multiple lines
Cash is not an issue as a going concern, they have £580M on hand with an unused facility on top

The issue is funding the growth of Ingenuity, THG want to continue to grow this division and invest another £135M intangible capex in 2023 and same next 4 years
however on the analyst call and when pushed they said they could switch off this spend over night it’s pure SaaS based to grow Ingenuity

Anyone who has subscription to the FT can read the comments below each of the news articles

Generally the comments are very negative with little understanding of the current commercial situation at THG
I posted my own views yesterday as a response hoping to get posters ( on FT BB ) to counter

Reposting on here - same reason - and also for us PI’s to consider why Apollo and others want to buy these assets and what price is fair ?

Quite a few numbers, so a few readers who post on here and don’t like maths best to look away

Apollo have done the DD

Let’s see the first offer, it maybe £1.50 as a starter for 10 who knows but we go from there and see who else steps in

FT reckons 10% of shares on loan, this week we see the start of the Shorts exiting in a big way

Bagger from here minimum

The Times

Kelso Group, the New York-based activist investor, has raised its stake in THG and called on the struggling health and beauty platform to considering separating off its Myprotein nutrition business.

Kelso, which first took a stake in the company in January, said that it held eight million shares through a mix of ordinary shares and a contract for difference, representing 0.55 per cent of THG’s total share capital.

It said that it had identified “significant intrinsic value” in the nutrition business as food and drinks manufacturers face investor pressure to diversify away from sugar and chocolate. Kelso has drawn up a list of potential suitors, including Nestlé, Coca-Cola and Mars.

In an update to the market, Kelso said: “In our view, this strategic shift is akin to the major oil companies diversifying into renewable energy and highlights the huge relevance and underlying value of THG Nutrition.”

THG has struggled since its blockbuster float in 2020 when it listed with a value of £5 billion. Its share price has since slumped by 85 per cent, and just endured a rollercoaster week, leaping 45 per cent on Monday after a takeover approach by a US private equity firm, then falling by a fifth the following day after booking a record £550 million pre-tax loss. They rose by 4.9 per cent, or 4¼p, to 89¼p yesterday.

Kelso, founded last year by John Goold, said that if THG did not receive a takeover offer that reflected the value of the nutrition business, it should consider separating the division out.

THG did not comment.

Think Sparta are hiding their stake, gut I would say min 2.1% max just under 2.9%

We will know by next Friday

Suggest it’s a battle for control of the BoD if MM doesn’t get his deal
not sure he could survive medium term if the balance of the BoD shifts

He needs a deal, that means he has to reign in his wish list to get this over the line
PE won’t be letting him run this like it’s the Matt Moulding show - which he does
his 24% sits above the 76% in his head

MM team has about 40%
Included Qatar/Sofina

PI’s make up 15% ish

Balance , family funds, heavy hitters taking positions, long standing investors, new entities

Suggest we look at it this way

Most PI’s have their holdings on Retail platforms

Ive just done a quick count up on Bloomberg to include

AJ Bell
Interactive
HSBC
Halifax
Insinger
Barclays - 7th highest holder of THG in their name

Ball park the above is 14% ish - would need to do a full scan but it’s around this figure
could be 15%

Plus we have Charles Schwab but I am guessing that’s where some are hiding from USA

I would go with 15% of the total shares are with private investors, it’s moved up quite a bit last few weeks

Good summary

MM has to win this battle, he loses and he risks getting kicked off the BoD

He has personal entity $debt against the real estate vs £20M of annual rent roll for his family interests, the new BoD will digging everything they can up on him to gain leverage

Put aside they will dismantle THG with disposals to create shareholder value today / near term Over maybe in 5 to 10 years

So MM will have to temper his demand in terms of his own ‘ carry ‘ to ensure a deal happens - he needs Apollo and others comfortable ditto exiting II’s large investors on price

Not sure MM’s master plan includes us PI’s - tucked in with non rolling II’s - getting the maximum return by squeezing shorts and driving the price higher that Apollo have to pay, it’s arguable it’s in the interests of the employees, charities, Moulding family for Apollo to pay the lowest price possible that they can get away

He will also want Apollo to pay as little as possible so his personal ‘ carry ‘ will
trigger at a lower £m/cap

It’s helpful for us / crucial that a majority of II’s won’t be rolling so to speak, we just hold on to their shirt tail as they set their price to be bought out, us little PI’s would otherwise risk getting toasted

As Goldens gist says below, you have to join the dots to see the players building their positions, they have been doing so quietly in advance of the GS expiring, MM has to get a deal or the activists come at him to remove off the BoD

Hence it’s win win for us PI’s, hold, sit back get your popcorn with the risk /reward ratio in our favour and enjoy doubling your money one way or another from this point

The 42p price just before new year was a total steal, still is today at 90p

The FT reported an enterprise value of £3.7B
Moot point but THG has £180M of net debt when we subtract the cash on hand could be argued THG has an enterprise value of £1.4B ish today based on m/cap net debt

Vs £3.7B being touted

Either way to get control Apollo need to pay a premium to the £3.7B or existing shareholders can consider enjoying in the restructuring one way or another - selling Nutrition / Beauty cutting back intangible capex etc or spinning off ingenuity

Nb tax losses on the balance sheet are just bunce for the future to use

https://www.investopedia.com/articles/fundamental/04/031004.asp

‘THG has about a tenth of its free float on loan.’

According to FT article

Wow ! Shorts got a problem

My thoughts

Reckon Apollo have done their DD

Thought they could pick up 50% to 60% at £1.50

FT/Lex / Kelso / saying publicly the SOTP is £3.7B and Sparta unofficially saying same
didn’t help the game plan

It does appear we have more than 1 suitor after THG

With the Golden share effectively gone now, Iain Mc loading up in March via Belerion alongside serious USA funds / players adding, it’s looking highly we will get a Bid off Apollo, will they secure at the end? Not sure ?
It could be someone else

Fund Ingenuity which Apollo could do and invest FCF / repay debt in the Core , target 8% blended EBITA with 10% growth - the market opportunity is there but we just don’t have the cash to invest in the core because Ingenuity nicks every dime
Nb reckon Apollo would be looking at better than 10% growth

5 years out Nutrition heading to £1.1B Rev
Beauty £2B Rev

Push the combined margin to 8%
No rent
No debt -

£1/4B combined cash a year
No tax bill for years
USA footing expanding especially with latest fulfilment Centre, we had 9% growth this important region
Sell both Core business within 5 years
IPO Ingenuity - 5 years out

PE tends to have 5 to 10 time frame

Serious value to be had

Worse case, investors kick MM off the BoD and the BoD sell Beauty/ grow nutrition / spin off Ingenuity, can’t see it coming to this though
A deal will be agreed but THG is going private one way or another

Am up 100% on my investment so v pleased, been a great run and more to come

Hope Ste2k closed his Short in time, up 32% this week alone

Kelso today

‘Any forthcoming offers for THG as a whole must clearly reflect this underlying value and in the event that an acceptable offer is not forthcoming then a separation of MyProtein should be considered, alongside a potential partnership and minority investment from companies such as those highlighted. Kelso believes that THG's nutritional business is likely ultimately to end up being owned by one of the large global food and beverage companies, all of which have already begun investing in nutritional, wellness and healthier assets to improve the mix of their sales between nutrition and chocolate or sugar products. All those transactions again support Kelso's sum of the parts view of THG’

MM has to get Apollo over the line or face the BoD outing him

The BoD can sell what they want to sell, he will lose control - still be a big shareholder but he won’t be running the show

Personally I can’t see it coming to this, a price will be agreed, maybe we can bag the £2.50 ?

Baldertons fund has to liquidate to repay its LP’s so they can’t roll

Can’t see any other II’s of note who will join with MM

Qatar could join with Apollo, it’s not out the question

The THG II’s who form the rump of the 60% - assuming MM/ employees / Sofina / Qatar make up the 40% - won’t be rolling over on the cheap

MM needs to get a deal over the line whilst he can, he may have thought Apollo could nick it at £1.50 to £1.70 and his ‘carry’ kicks in earlier

£2.50 and it pushes him out 80p before he gets his kicker at whatever metric that’s agreed

We just ride the II shirt tail and we enjoy the best deal they get themselves but it’s looking like it starts with a £2 ..

FT Lex on line

FT article is behind a pay wall

You could buy a copy ?