British Prime Minister Boris Johnson (left) with Hut Group founder and CEO Matthew Molding (right) during a visit to the Fulfillment Center in Warrington, northwest England on December 10, 2019.
Ben Stancil | pool | AFP via Getty Images
British e-commerce company THG said it knew “there is no reportable reason” for its share price to plunge 35% on Tuesday.
Shares of the SoftBank-backed company suddenly fell during the afternoon, posting their worst one-day performance since listing on the London Stock Exchange last September.
The move came on the heels of the company’s capital market day, which set out to reassure investors and analysts that THG can turn things around, with shares now down 65% since the start of the year.
In his presentation, aimed at allaying concerns and explaining THG’s innovation sales platform, CEO and founder Matt Molding criticized short sellers, but analysts were disappointed.
In a statement to the market on Wednesday, THG added that “no new material information was disclosed at this event.”
“Since going public in September 2020, THG has consistently met its targets set at the time of the IPO and recently announced strong first-half performance across all divisions, with group revenue of £958.8 million (US$1.31 billion), +44.7% annually over throughout the year.”
“The group also has a very strong liquidity position as it enters the height of the trading season, with cash available as at 30 September 2021 of £700.0 million across the 3 to 5 year facility.”
Although the Capital Markets Days are meant to help analysts and investors better understand certain aspects of the business, THG’s efforts have been “open to the wrong reasons,” according to Ross Mold, chief investment officer at British stockbroker AJ Bell.
“It seems the attendees didn’t get the level of information they wanted, and soon messages were sent to HQ to offload the inventory,” Mold said.
“Having joined the stock market with so much fanfare, the market now appears to be taking the view that THG has been significantly overvalued and that the division of labor raises more questions than answers.”
THG, formerly The Hut Group, sells vitamin, nutrition and beauty products, and operates brands like MyProtein, Lookfantastic and Mankind, while licensing its technology. The initial public offering of 500 pence per share was one of the biggest tech floats of 2020.
Since announcing its plans in September to launch its beauty business in favor of focusing on THG Ingenuity — an e-commerce platform that handles web sales and corporate logistics to sell products directly to consumers — the group’s stock price has fallen.
SB Management, a division of Japanese tech giant SoftBank, announced in May that it would invest $1.6 billion in Ingenuity, giving it a 19.9% stake, while also acquiring $730 million in THG itself.
A puzzle for investors
THG shares initially started to rebound on Wednesday, before dropping more than 10%, dropping 4.6% late in the morning. Mold suggested that the assessment that followed Tuesday’s free fall is a “puzzle for investors.”
“On the one hand, sentiment is incredibly weak towards the stock and there is no point in conflicting with the flow if the market decides THG is useless,” he said.
“On the other hand, investors are now given the opportunity to snap up shares in a company at a price where the original source of the excitement is now being offered for free.”
THG Ingenuity initially generated great excitement, with major clients including Nestle and Unilever offering great credibility to investors.
Mold suggested that a lot of product manufacturers now want direct-to-consumer service, which means business growth prospects are in theory strong.
Mold explained that SoftBank’s call option values the Ingenuity division at £4.6 billion at current exchange rates, but at a share price on Wednesday, the entire group was valued at around £3.15 billion.
This effectively means investors can buy cosmetic and nutrition surgeries while getting offers on technology and logistics for “nothing,” Mold said. However, the big question remains what each business will look like as a separate entity in terms of cost base, capital expenditures and cash flows, he suggested.
“THG has been criticized for not being open enough about the financial meltdown. Until it begins to provide some answers, stocks can remain under pressure because it is very difficult to properly assess this business without all the right information,” he said.