THG shares remained in freefall today after its capital market day frightened investors about the future of the company.
It comes after the retail group shared its 2030 sustainability strategy with investors on Tuesday, sparking concerns that Japanese investment giant SoftBank’s support for THG was cooling.
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.
Russ Mould, investment director at AJ Bell: “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.”