FT a few mins ago19 Jul 2022 11:35
Main part…..There were supposed takeover approaches from shareholder Belerion and from Nick Candy, neither of which were sufficient for CEO Matt Moulding to open the corporate kimono. There’s also trading, which as been deteriorating steadily as whey prices rise and sterling doesn’t. There’s also Softbank, whose SB Northstar division was last year given a free option to pay $1.6bn for a 19.9 per cent stake in THG’s Ingenuity division, but probably won’t use it by dint of no longer existing.
To that list Barclays adds macro-led weaker consumer spending and slower corporate decision making. “In this context, we find it hard to build confidence that consensus expectations have found a floor, and this set up is tricky in the current market environment for a FCF negative business,” analyst Andrew Ross tells clients.
Barclays (which is THG’s joint house broker) guesses at 18 per cent sales growth this year, which is some way below company guidance for 22-25 per cent (pre a 1 percentage point headwind from Russian withdrawal). The 2022 Ebitda guess of £147mn is 8 per cent below the market consensus but comes with the caveat that Ingenuity still needs to meet the management target, which “isn’t a given”. Cash burn is £156mn this year and won’t turn positive until 2025, by which time gross cash is down to £100mn — which doesn’t leave much scope for acquisitions of the type that have made THG’s reported numbers such a morass all though its existence.
“We don’t think THG needs to raise capital but we do think capital preservation is a relevant factor and could impact how fast this business grows in the next couple of years if macro conditions deteriorate further,” says Barclays, with understatement we should probably consider admirable.
Much of THG’s value these days is in the expectation that Moulding pursues a break-up, perhaps by finding buyers or investors for the individual parts, which brings us back to those sum-of-the-parts tables.
This year’s lossco sell-off has hit the European e-commerce stocks very hard and in that context Barclays’ valuations for THG’s bits are not ungenerous, with Beauty and Nutrition priced at the top of their peer group at 0.4x and 0.5x sales respectively. Ingenuity’s priced at 7x sales, which is a higher multiple than Shopify. Yet Barclays still only reaches 100p per share.
A reminder that in May, THG said an offer pitched at 170p a share “significantly undervalued the company and its future prospects”.
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