THG specialises in attraction. No surprise then that its brief and beleaguered history as a listed company is littered with takeover approaches. These have so far fallen by the wayside. The market dares to hope that the latest one from Apollo will succeed.
News of the private equity group’s bid — sketchy on details — bounced the internet retailer’s shares up more than 40 per cent on Monday.
Understandably, investors would cheer an offer for THG. The Hut houses a motley crew of businesses in the beauty and wellness space. Before news of Apollo’s bid the company had an enterprise value of about £1.5bn, a lowly 0.6 times this year’s sales. Its share price has fallen about 90 per cent since the group’s IPO in 2021.
The problem has been THG’s disappointing business performance. It consistently loses money at the operating line. Raw materials have become more expensive just as consumers are tightening their belts. But four profit warnings in the space of a year have not inspired trust in management’s forecasting capacity.
THG’s straitened circumstances must frustrate shareholders because the group trades at an eye-popping discount to the sum of its parts. Its beauty business — with highly rated skincare brands and well-trodden online platforms — might alone be worth £1.4bn, says broker Liberum, on an undemanding multiple of one times forward sales. Healthy nutrition, with brands such as Myprotein and Myvegan, could be worth another £1.8bn. Throw in £500mn for its ecommerce technology and the enterprise value would shoot up to £3.7bn — more than double what it was on Monday morning.
This gap helps explain why past takeover talks have floundered. THG chief executive, co-founder and largest shareholder Matthew Moulding has rebuffed offers well above the current market price before. Apollo’s effort may well go the way of its predecessors. But if THG’s operational performance continues to disappoint, pressure will only grow on Moulding to lower his expectations.
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