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Steve,

THG report they currently pay give or take Ingenuity £400M a year, roughly 25% of sales

Is that a fair rate ? We don’t know as MM set the terms to support his pet project, would THG pay £400M a year if it was a competitive tender?

Ditto what term will THG have to enter with Ingenuity?Pay Ingenuity over 5 years £2B, 10 years is £4B on a straight line basis on potentially uncompetitive terms or not tested on the open market ?

For example, if the contract was for 3 years, £1.2B , the market may take a view, if it’s 10 years £4B it may not like and it well affect the amount a bidder is prepared to pay per business

Plus we have Internal rent that THG may still have to pay to Ingenuity, MM has to cover the Ingenuity capex somewhere, he just doesn’t have the revenue based in current FCF, something you have pointed out, although he does say Capex will fall over the next 5 years, we can’t trust anything he forecasts

I just can’t see a hostile bidder taking on THG today, the risk factor is too high, better to sit back, wait for MM to carve out Ingenuity and it’s contracts with THG then make your move for the divisions you want when you know all the facts.

Suggest this is the best tact for PI’s today if not already holding, wait and see the T&C’s then evaluate, you may miss some of the upside but you mitigate the downside

Nb I’ve been in /out 2 cycles of THG, MM can’t be trusted, we have all learnt that.

Btw I don’t disagree with your general comments on this BB it’s just I don’t believe in MM forecasts or anything he says

Let’s wait and see Steve

We have no idea on the ‘internal ‘ rent that Ingenuity will charge to THG and is there a cost to Remain Co for capex to that space

Learnt with MM/THG wait until you know the full facts

My view, THG is a pure punt today and there may be an opportunity for a trade

Ingenuity shares are going to be a bottom draw illiquid asset

if you get something in the future it’s a bonus but place a zero value today

Beauty & Nutrition have a market value today of £900M EV give or take

I think each one is worth well more than £450M each however we don’t know the terms of the supply contracts with Ingenuity ditto the capex split of £100M p/a

We need to see capex lower than 5% at Remain Co

As such I would rather wait until more clarity on these 2 key points, if MM had no management involvement with either Co that would be a bonus ball

Sit and wait for the details, pay more if the above is positive news is my take today

GLA

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That’s part of the point, to max SOTP which is what it’s all about now

We won’t get a market rerate until THG is transparent on key KPI’s

To us longs THG appears very cheap at just .4 X sales and a total EV of £900M

MM’s antics has of course driven away potentially new

II Investors and for whatever reason he has succumbed to the SOTP break up we all wanted but what role if any will he be involved in the 2 core businesses?However putting aside MM is the market waiting for the detail before taking a punt on THG?

For example, THG has £300M of debt on a £600M M/cap , assume post transaction how will this be dealt with ? What’s the terms of the Bond ? Can they split the debt between 2 trading companies, will the Bond holders let them? Can they refinance and repay the Bond Holders early and what’s the fee ? Will Remain Co have to £raise to strengthen the balance sheet to satisfy the Bond holders?

To do a full split of the 2 core businesses the debt needs to be dealt with ideally to create shareholder value via transparency be that via a takeover / sale or just straight like for like with peer companies

Then there is the lease within a lease on the real estate, how much per annum and terms ? Ditto T&C’s on the distribution contract with Ingenuity / term ?

Potential buyers of either of the 2 Core businesses will be especially interested in these points

Remain Co will have to explain its Capex requirement, it’s been a big number for THG averaging around £100M p/a ish

What’s the split and when does it finish being 5% of revenue, especially with EBITDA margin running similar ?

Operationally this is a big one as there no positive FCF unless the margin increases if Capex remains the same, put aside what’s the split of the capex ?

Can’t see an upwards rerate until the above is disclosed but they get it right and there could be a good pay day down the road but it is a punt at this point

Post demerger of ingenuity will we see a demerger/ split of the 2 core companies?

This may be a sale or merger of one ? Potential Nutrition ?

Beauty retains the PLC quote unless a bid ?

Nutrition could be worth the current £m/cap ?

If the BoD of each company was looking to raise capital to reduce debt Mike Ashley then has a chance to buy in like he has with Ingenuity, he just bides his time.

He doesn’t tend to do big buy outs but more strategic stakes and makes his move when a target needs capital

He can then increase his stake and apply for a whitewash with the Takeover panel as per play book with Frasers

Ohhshh

That’s my view.

Sit tight get my stake in both pro rata and await the split of the 2 core business’s in affect have 3 holdings potentially

Cosy up come and join us

1.8% on loan, these boys will need to close

THG de risked with the £55M leases going

2 core businesses ripe to be acquired / or separate listings

the debt per business is £150M giving a closing EV value of £500M each or £m/cap £340M

Throw in the free ride on Ingenuity with Frasers on board

50p looks very cheap, the Shorts have to exit

We can sit tight not participate and still get a stake in Ingenuity - it could well be classed as a dividend so taxable, not sure they can just dish out shares in a demerged entity that has a value - £400M in this case - and it not be taxable, it’s has to be a dividend in species

Appreciate this is nominal because it’s based on their EV of £300M and they are raising £100M but you get 75% of the nominal value either way if that makes sense.

The market will fast work out what it thinks Beauty and Nutrition are worth, I would argue they are worth more the £340M each on a straight line basis which is the worst case value if it places a zero value on the Ingenuity stake

At 50p a share THG looks a steal if you think the 2 companies above are worth more than £340M each

OSG

Spot on ….

If we take at face value the £300M EV of Ingenuity for this example

Then tonight the market at 4.30pm valued Nutrition and Beauty at £194M each, that’s all

Existing shareholders can now place their own value on each of the core business’s ,even if we placed zero value on our Ingenuity shares the two core business’s are valued at m/cap £340M each give or take

How about looking at it this way;

THG share holders are off the hook for £55M p/a rent liabilities

Ingenuity has an EV of £300M plus £100M new cash on top, don’t take up your rights and you receive pro rata shares on a 3 for 4 basis, but this may be construed as a dividend in species

You still end up with your current THG shares but the balance sheet is strengthened by default of shedding the leases

Then you look at the value of Nutrition and Beauty and let’s say £1B for each as a figure, you make your own call ovs on what you think each is worth but based on £2B that’s £1.50 ish for a THG share and you get a free ride with Ingenuity if you don’t take up your rights

On a like for like that’s where we stand tonight - as I say make your own call on the value of the 2 core businesses

Some thoughts

£2M a month cash burn currently, assume £26M cash in hand today

Could we achieve £30M diagnostics? What we paid? For this example if we did today we would have £56M?

Annual LN paid in cash & operational cash burn £37M ? TP say cash outflow to increase but let’s discount that for now, go with what we know.

The BoD could say from a fiduciary point of view they can justify paying the next few quarters of the LN using cash in hand -taking the view they can dispose of Diagnostics at a price £20M to £30M minimum - and upfront partnership licensing deals, but we don’t know the £value of these ?

Lot of moving parts above and there is execution risk, should the BoD also discreetly put the group up for sale and big Pharma with deep pockets fund ?

We have some worth and run this strategy alongside attempting to secure partnership deals ? See where it takes us?

Ovs not sure what we are worth on a trade deal of our IP but running both makes sense just in case ?

Of bourse the BoD could settle the LN in paper and we have £56M of cash in this example and then have 2 years runway ?

On balance it may be better to pay the LN with shares, sell diagnostics and go into negotiations for both options with a stronger (cash) hand ?

No longer a holder of THG but looking to re-enter if the risk /reward looks attractive once the detail is eventually announced.

Suggest one of the biggest issues with Ingenuity is not just the working capital as a standalone entity as such but will the landlord remove THG plc as the guarantor on the property leases?

Even if the Landlord was offered a premium to release THG would their lenders agree ?

Taking the view the annual rent could exceed £55M p/a , the directors of THG would have to be careful that if Ingenuity defaulted on the rent would they been seen as liable, especially if they are thinking about paying dividends?

Put aside Beauty/ Nutrition will probably have to sign long term contracts with Ingenuity, THG also has close to £1/3B of debt how much of that is attributable to Beauty/Nutrition and ditto Ingenuity? Will THG have to carry the lot? They increased debt by £80M over the last 12 months alone.

A number of important issues to unpack and unless already holding it’s probably a sit back / wait and see approach until the detail is disclosed via an RNS, will THG require a £raise to strengthen the balance sheet and use to reduce debt / extract themselves from the lease liabilities? If that was possible

Any views to above ?

Equity ranks behind debt in regards a restructuring from a legal stand point

MA has enough clout with his holdings to secure partnerships in Boo / ASOS as it stands today, so why buy more ASOS today?

The logical conclusion could be he wants to merge BOO/ASOS

Frasers underwrite a Rights Issue and obtain a Whitewash from the takeover panel, assume combined debt of £400M it’s nothing to big Mike to cover every £ the market doesn’t take up, he may end up with well north of 35% to 40% of the enlarged group and then he restructures

It’s just at what £Mcap the rights issue is actioned - no idea

Hi Hex

Good post as usual

Hi Swazer

Just had a look at your posts the last few months

Tbf you called the price action

Genuine question

What’s your view on where we go over the next month or so ?

Interested to know your opinion

Thanks

If Avacta sold their Diagnostics business ? Would they achieve £30M they paid , say they could ?

They don’t attempt to settle the Convertible in part but use the proceeds to settle the next Qtrs payment, the share price should firm , Avacta when the timing is right conduct a placing to make up the gap between the loan note and proceeds of the disposal ? £15M to £10M? Square the outstanding convertible?

Appreciate the above depends on the disposal price

Post commercialisation of AV6000 I wonder if Avacta trial data adding Affirmers ?

I’d successful that opens the door to extend the IP exclusivity?

Hi Martinu

My thoughts on stock it is usually it held at cost ? Not at a future sales price ?

Trying to work out the cost of stock per tonne and how £much do we need to service the expected sales growth over the next 12 to 24 months ?

Any ideas of the cost per T would be appreciated ?