THG has been urged to make changes by activist investor, Kelso, including improving its communications.
The company said it had been analysing the North West firm, including a visit to its offices in Manchester and Warrington. It concluded that 2023 would be a positive year for THG “as many of the operational headwinds experienced during 2022 continue to reverse.”
However, it has recommended that the group’s management must take action to increase its shareholder value.
Amongst its recommendations are that THG moves from the Standard List to the Premium List of the London Stock Exchange. This had previously been announced by THG in 2021, however, it has been delayed.
It has also urged THG to “continue to review strategic options, alongside focussing on cash generation, to ensure underlying value is realised in a practicable timeframe.”
Kelso stated that it was its view that there is a “clear path to enhancing shareholder value through more financial visibility, which we hope is detailed in the pending results.”
It has also encouraged THG to consider a share buyback because its share price is undervalued.
“We note that THG maintains the authority to buyback up to 10% of its outstanding shares. As stated in the January 2023 trading statement, THG has cash on hand at year end of c.£470 million, with £170 million undrawn revolving credit facility, net debt of c.£200 million, reducing to c.£160 million upon receipt of £40 million of proceeds from non-core freehold asset disposals in H1 2023,” it stated.
Its final recommendation is that THG’s “relationship and communications with the investment community needs reinvigorating to improve the general understanding of the potential of its business.”
This it stated was “especially pertinent” when moving to the Premium List. Kelso added that improving communications could attract more mainstream UK and global equity funds.
“Whilst these achievements have been communicated through social media platforms such as LinkedIn, we believe deals of such commercial significance should also be communicated directly to current and potential THG investors via the Regulatory News Service (“RNS”), specifically RNS Reach which was introduced as a service to improve listed company communication with its shareholders,” it stated.
Kelso has bought an addition 2.4m shares in THG.
“The current stock market conditions suit our strategy of finding undervalued situations where we believe through our focused efforts, we can help unlock value,” said John Goold, CEO of Kelso.
“We continue to believe that THG represents a great opportunity to make significant returns for Kelso shareholders.”
