Member Info for Okehurst1

Yeah so
Kelso has £750M debt, fully serviced and £50M FCF
and issue £750M of paper , rename to My Protein

The Kelso Sponsers - the list below - will have warrants as their bunce
I have no idea what the value of these are but THG negotiate on this point

It works for all parties

Well presented post Plutus

£1.5B for Nutrition paid via £750M cash £750M Kelso paper

THG retain the cash, repay debt £160M, invest balance into Beauty and Ingenuity

THG pay out the Kelso shares -renamed My Protein - via dividend in species

My Protein has £750M of debt, 7% coupon covers coupon £50M and is left with £50M FCF

Works for all parties; we all get a carry via the dividend; Kelso can fund and have FCF, anyone thinks My Protein is cheap at that m/cap buys more shares or holds sells if they don’t

THG has no debt, saves £60M a year in coupon payments - cash in bank 36 months and can fund the 2 remaining businesses

Can that list below raise £750M on decent terms? Gut feel they can, the above works for all stakeholders including employees / suppliers

A Boots style tie up with an equity sale looks stronger by the day

Ingenuity funding then sorted and the Core enjoys its £cash and a re rate

It would be a class bit of entrepreneurship by Moulding

So Ingenuity run 2 models

- GMV via their leased warehouses, Shopify / Ocado esq style revenue / margin
high revenue, high element of tangible capex

- £ARR via a pure SaaS play, intangible capex

Invest heavy each year into the SaaS element which in effect becomes your ‘moat’
the heavier the £cash required the less chance of more competition entering the market

Think we can see why THG advised they want 5% of revenue for Capex, £80M plus a year for intangible capex 2023 thereafter (£79M in 2021)

Fair points Kim

THG would also command an £ARR valuation on the pure Sass revenue from PAYG model with Auto Store, probably around 10X in todays market

What makes it interesting from a share price valuation its based on the last months revenue x 10, so if THG landed 12 contracts throughout the year and each one was worth £12M p/a - as an example - and month 12 they achieved £12M in sales.

The £12M monthly sales would be valued @ £120M, so it’s not on turnover but monthly revenue, you don’t need high revenue like the GMV model

At gross profit level our only real cost is data centre based so our margins could be as high as 85%

It then boils down to the investment/ capex into the SaaS Platform

Know this is a bit of blue sky till deal done - fun whilst we wait

£1B value on Beauty and THG bag £300M cash -could be higher valuation of course
It’s the end of THG being one of the most shorted shares on the LSE

Market could then value Nutrition on its £100M FCF, maybe £1.5B (15X )

Ingenuity gets a value of £something on top, even if it was just its £300M cash
assume they injected all

£1.70 to £2 with the 2 Core businesses generating £2B and £160M EBITA looks reasonable

A plan to repay debt at £40M a year and the market adds back the £60M finance costs removed in 3 years, it looks dirt cheap at 60p today

Canary / Steve, good debate.

Think your right re Boots and Moulding brings in some capital as part of the deal, it could be a class bit of deal making - and de risking the Plc same time

Know it’s a lot of £money spending £80M plus a year on the upgraded SaaS platform but Ingenuity could be worth serious ££ some 3 years out

Hi Canary

Agree with your gist below, THG built their own platform for Beauty/Nutrition, they then built a User Interface (UI) effectively a wrapper that could be white labelled and ingenuity Commerce was formed
For multiple reasons the model being end to end didn’t work , cost being one of them
when we look at Shopify who are offering a similar service their revenue is less than 1% of GMV - posted the link to the Shopify CEO disclosing the margin this week

THG have £19B GMV capacity and only 15% being utilised, THG need to develop a platform to satisfy the ‘ whale’ clients, and fill the above ,suggest this next Gen service will be highly technical and bespoke per partner (whale) utilising AI and with a complexed UI managing the clients API’s, THG have identified the cost to build this out at £80M + a year intangible capex - they spent £78M on same in last audited accounts so it’s in line plus they advised us capex would be 5% of revenue going forward

The Autostore JV whilst not being exclusive is interesting, they won’t be managing / providing a full platform, the end client uses their own, THG will provide the UI / manage the API’s between all parties
Autostore say the end client will still have to fund up to 30% upfront of the cost, THG should get paid something same time, thereafter PAYG, I guess it’s just the time lag from now generating sales, worth noting this should be high margin £ARR

So from a technical point of view (SaaS) Ingenuity has pivoted but needs serious upfront £cash to deliver

Personally I think Moulding will pull off an innovative plan to fund and avoid using the FCF / debt via the Core and de risk the PLC, we just don’t have headroom to fund internally not without damaging our credit rating any further and all the issues that brings

A link up with Boots makes a lot of sense and could work for all parties ?

Now back to just 6p away from where we closed before the trading update a month ago, the market is anticipating, fingers crossed

Hi Canary
Thanks for your thesis below, it’s a good debate and helps us PI’s
I am out and about today but will send something over tomorrow

Not sure if we have any Ingenuity dev’s on the BB who can critique our comments?
Would be helpful?

Nb don’t want to be seen as being distributive, it’s good to discuss stuff, we have a decent BB here on THG

Hi Canary

No prob, happy to debate

Have a good weekend :-)

Golden
This social media announcement is over and above the Whale £1B they added to their last RNS

It’s great news …

The issue is the funding of the SaaS platform - put the margin to one side for now

We know they have budgeted £80M plus a year for intangible SaaS development, it’s always been about how will they fund this? It’s intriguing

Suggest that’s why we get this news via social media not an RNS,,there must be a solution being worked

Thinking this through

As part of the ‘ whales ‘ deal THG has to complete the Autostore PAYG contract first, the
negotiations with the Whales are running parallel, with the both parties requiring this sign off to complete their agreement?

It’s then down to is equity involved within the Whale /THG partnership to fund Ingenuity ?

Moulding the top entrepreneur he is has been gaming this out

Hi Golden , agree he says revenue which is less than 1%

I’ve not studied Shopify accounts but am assuming it equates to EBITA at best - that was my point, didn’t want to get into the weeds stuff if you get my gist
best case is 1% ( just under )
Ocado looks similar , I’ve not studied this one in depth either, will wait till we see our whale deal

That’s Shopify margin - don’t forget it’s on GMV
Ocado is similar margin

However working cap is low as there is no stock cost, no risk of stock right downs etc
all that’s not our problem.

We have real estate sorted we have that sorted ,the Robots are now PAYG - paid for by the client - think that’s a smart solution

We just have to fund intangible capex being SaaS, last hurdle for Ingenuity

Following on from Ste’s post below

The CEO of Shopify explaining a snapshot of the numbers last night

Check out early on he says they had $200B GMV and their revenue was $1.7B
- Sub 1% margin

Personally I don’t think Shopify is a comparison peer to THG , 90% of our revenue is either as a food producer or D2C beauty platform rather than a market place for SME’s

Ingenuity did £200M Rev to Shopify $200B

If the Whales come off/ funding for the SaaS platform secured suggest the Ingenuity model is nearer to early doors Ocado and the industry EBITA margin for GMV looks around 1% as a general rule of thumb

https://youtu.be/OGmXJ-NWKE4

Nb Ocado raised big $$ last 12 to 18 months , top of my head it was £700M plus
different stage of course to Ingenuity

The big cost is the intangible SaaS, that’s the one to watch - £80M to £90M a year

I think there is an amazing opportunity here but it comes with risk - highlighting we have no back up plan for cash other than then debt our margin was 4.5% last year at group level - H1 was horrible that was 3.5%, this is their numbers btw
it may well be lower at 4% for the year as they say it £70M EBITA for 2022

We have £80M to pay out before capex and restructuring costs of On Demand

Don’t forget we also have to build out the SaaS platform as Ocado have, it’s not plug & play stuff.

I am banking on Moulding doing an equity deal to fund and that’s the delay - opinion only mind and I may well be wrong but I can’t see another solution cash wise.

Nb one eye on insurance companies etc, lots of high finance considerations that our new CFO will be weighing up, he looks a smart boy.

With respect this is an operating cost not capex - PAYG

THG intangible SaaS was £78M last year, £80M to £90M this year and then ongoing
that’s the one to watch for, this is the big spend as it’s predominantly developers, possibly as many as 1000

It’s an ambitious plan but it’s every dime of the net operating cash (FCF ) for the next few years - think Ocado - with no head room other than debt

Not being negative on the opportunity, intrigued to see how Moulding - as the top entrepreneur he is - funds it / or do the BoD take a big punt and gamble they can refinance whatever debt is left of the £560M bond when it’s up for repayment

It’s costing us a whopping £60M a year at the moment, it’s a big chunk of EBITA when we add rent it’s £80M all in

Bring on a equity deal RNS