RE: Extract from today’s Barclays note about valuation19 Jul 2022 18:49
OK Steve here is the part (I thought it was encouraging?) concerning the recent bid activity.
Valuation – what next regarding corporate action? 0.6x EV/Sales, 10x EBITDA doesn’t look expensive. But it is in the pack vs. European E-Commerce, where many names don’t look expensive. But with FCF negative and earnings momentum still uncertain, we aren’t sure this is enough of a floor to be positive on the stock within our relative rating system purely due to the headline multiple. More practically, a hard catalyst to highlight value is needed. Reportedly (e.g. Bloomberg, 15 June 22), neither Belerion / King Street (at 170p) nor Candy (not disclosed) were given access to do due diligence after unsolicited bids. Neither is able to come back until mid- December without the agreement of the THG board, a material change in circumstances, or a bid from someone else. Of course there could be other bidders; but the events of the last few weeks make it seem less likely to us near term – we aren’t sure what changes would be needed to make potential suitors bid higher in the near term. We think the legal separation of the assets is now largely done and would expect the notification to Softbank regarding the option on Ingenuity to be sent soon. The 3-month clock should stop ticking by the end of October / early November. At this point, we think it is unlikely Softbank takes up the option (it is heavily out of the money and the capital market environment has dramatically changed vs. a year ago), but there is still a potential scenario of a renegotiation, which would be positive, in our view. However, our base case is that Softbank walks away. If that did happen, there are still several potential options for each of Ingenuity, Nutrition and Beauty. Our view is that each of these assets has real value and there are various potential interesting structures, which could also entail raising new capital. But we are working on the base case that the current capital market environment makes execution challenging for now, whilst a still (relatively) new Chairman may mean that decisions don’t come until 2023. If there were clear catalysts to highlight value ahead, this would be a big factor in becoming more positive on the stock. Timing here is key.
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