THG has attracted the debut, £2.7m investment from newly created “activist investor” Kelso Group Holdings PLC, which said The Hut Group was a “hugely exciting but significantly undervalued business.”
The £2.7m purchase of THG shares at an average price of 54.5p, representing around 0.4 per cent of the ecommerce and tech giant, is the first investment for Kelso, which floated in London with £3m of new cash earlier this month.
On its website, Kelso promises to “identify, engage and unlock trapped value in UK-listed companies” and “effect change where existing shareholders are often unable or unwilling to do so themselves.” It is led by chief executive John Goold, former boss of small-cap broker Zeus Capital, and chief investment officer Jamie Brooke, former lead fund manager of the Hanover Catalyst Fund and the Volantis small cap investment team.
Kelso Group said in a statement: “The board of Kelso believes that THG is a hugely exciting but significantly undervalued business.
“Matthew Moulding the THG founder and CEO has built a business with true global scale in two global growth sectors of nutrition and beauty employing around c.8,000 employees with 18 fulfilment centres shipping to 195 destinations.
“On 17 January 2023, THG announced record revenue for the year to December 2022 of £2.25bn, albeit with a reduced core adjusted EBITDA on a continuing basis of £100m, following EBITDA of £161m in FY21 and £151m in FY20.
“However, we believe this reduced EBITDA is temporary and will be enhanced with operational improvements and not least from deflation in certain input prices, for example in whey.
Kelso also made positive noises about the recent separartion of THG into three distinct divisions: “Kelso believes that the separation provides THG with significant strategic optionality,” it said. “The potential to separate parts of the business could provide THG shareholders with significant upside from the valuation of the business today. Kelso believes that the current stock market value does not reflect the underlying value of the sum of each of the main THG divisions.”
In particular, Kelso highlighted the Nutrition business: “The MyProtein and MyVegan brands could alone be worth in excess of the entire current market capitalisation of THG,” it said. “For the reasons above, Kelso believes this is an exciting first investment for its shareholders.”
THG was listed in London in September 2020 with a market capitalisation of £5.4bn at the initial public offer price of 500p, but saw shares drop as low as 31.15p late last year. Shares were up on Tuesday morning to 57.02p.
