THG shares fall another 35% amid investor confusion

THG CEO Matthew Moulding

(Updates with Wednesday statement from THG and AJ Bell comment)

Shares of Manchester-based online beauty and nutrition retail giant The Hut Group (THG) plunged another 35% on Tuesday after it held a capital markets day presentation for investors that had been intended to reassure the market it could reverse a recent share price slide.

Shares of Softbank-backed online retailer THG — which has a complex structure that some investors fail to fully understand — fell suddenly in late afternoon and closed down 34.75% at £2.85.

Tuesday’s share price fall alone wiped about £1.85 billion from the company’s stock market value, taking it down to around £3.48 billion from £5.33 billion at the start of the day.

The stock has now fallen almost 60% since September, having listed last year when it sold shares at £5 a share.

The investor presentation backfired amid claims from THG chief executive Matthew Moulding the online retailer is under attack by short sellers from hedge funds making bets against its shares.

Hargreaves Lansdown analyst Susannah Streeter said: “There are reports as well that a number of different institutional investors have sold shares.”

THG was expected to detail plans for its e-commerce services business, THG Ingenuity, and lay out its ESG strategy at Tuesday’s capital markets day.

On September 16, THG announced it would spin off its online beauty business THG Beauty next year in a stock market listing.

THG, which raised over $1 billion from SoftBank Group earlier this year, also said on September 16 it may also seek to spin off its other main businesses THG Nutrition and THG Ingenuity, its tech and logistics unit.

One shareholder in THG said investors had wanted greater visibility “over cross charges between the beauty and nutrition businesses and Ingenuity … which they failed to provide.”

Shore Capital analyst Eleonora Dani said: “They have explained what they do and what the group is about.

“But it’s what any other multichannel retailer is about . . .

“From my point of view, they have failed to justify the multiple [the stock] is trading at.”

On Wednesday morning, THG said in a stock exchange statement: “THG PLC notes the fall in the share price yesterday following the Capital Market Event, and confirms that it knows of no notifiable reason for the material share price movement, and that no material new information was disclosed at the event.

Since its IPO in September 2020, THG has consistently delivered ahead of its targets set at the time of IPO and recently reported a strong first half performance across all divisions, with group revenue of £958.8m, +44.7% YoY (CCY). 

The group also has a very strong liquidity position as it enters its peak trading season, with available cash as at 30 September 2021 of £700.0m across long dated 3-5 year facilities. 

THG is due to report its Q3 Trading Update on 26 October, and looks forward to updating investors in the ordinary course.”

AJ Bell investment director at AJ Bell wrote: “Capital market days are meant to be informative events, helping analysts and investors better understand a business.

“In THG’s situation it was eye-opening for the wrong reasons.

“It seems that attendees didn’t get the level of information they wanted, and messages were quickly fed back to HQ to dump the stock.

“Having joined the stock market with a lot of fanfare, the market now seems to be taking the view that THG was grossly overvalued and that breaking the business up creates more questions than answers.

“The shares initially rebounded on Wednesday after yesterday’s slump, but quickly went back into freefall.

“This creates a conundrum for investors.

“On one hand, sentiment is incredibly weak towards the stock and there is no point going against the flow if the market has decided THG is a dud.

“On the other hand, investors are now being given the chance to snap up shares in a business at a price where the original source of excitement is now essentially thrown in for free.

“One of the company’s divisions called THG Ingenuity was the reason why the market was initially excited about the business, a one-stop-shop that handles web selling and logistics, aimed at brands that wanted to sell direct to the consumer.

“Nestle is a key client, giving THG some credibility.

“A lot of product manufacturers now want to go direct to the consumer, which means the growth prospects for THG Ingenuity are theoretically good.

“In fact, Next is even going down this route as a rival provider of web services and logistics to third parties such as Victoria’s Secret and Gap in the UK via its Total Platform proposition.

“In May, Softbank bought an option to buy a 19.9% stake in THG Ingenuity that values the division at $6.3 billion or £4.6 billion at today’s exchange rate.

“With the shares now trading at 258p, the whole of THG is being valued at £3.15 billion, meaning investors can effectively buy the beauty and nutrition operations and get the technology and logistics bits for nothing.

“If that was the sales pitch when it floated, there would have been a large queue around the block to buy the shares.

“The big question is what each business would look like as a standalone entity, namely the cost base, capital expenditure and cash flow.

“THG has been criticised for not being open enough about the financial breakdown.

“Until it starts providing some answers, the shares could well remain under pressure as it’s very hard to properly value this business without all the right information.”