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Birmingham Post
Birmingham Post
Business
Jon Robinson

Activist investor buys into 'significantly undervalued' THG in deal worth almost £3m

A minority stake in software and online retail group THG has been snapped up by Kelso Group.

The deal, worth £2.7m, has seen the group acquire 0.4% of the shares in the Manchester-headquartered giant.

It is the first investment for Kelso, which floated on the London Stock Exchange earlier this month.

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A statement from Kelso Group said: "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.

"We also regard THG's comment that Ingenuity is 'in advanced discussions to provide long-term software solutions for several significant enterprise clients' as positive news.

"Kelso believes that the THG board's actions, through the new chairman Charles Allen, Lord Allen of Kensington CBE, to improve governance and expand the executive team will pay dividends in 2023.

"We think that the recent appointment of Damian Saunders as CFO, previously a senior partner at Deloitte, as announced on 24 January 2023, is positive, especially given his knowledge of THG having been involved with the 'separation' project which formally gave the three main divisions their own corporate independence.

"Kelso believes that the separation provides THG with significant strategic optionality.

"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 believes that the Nutrition business, which incorporates the MyProtein and MyVegan brands, could alone be worth in excess of the entire current market capitalisation of THG.

"This is evidenced by the valuations of deals in that particular sector in the last few years, caused in part by the shift in consumption away from chocolate and sugar to health and nutrition, a trend which we believe will continue.

"For the reasons above, Kelso believes this is an exciting first investment for its shareholders."

As of end of trading on Monday, January 30, THG's market capitalisation was £710m.

The group had listed on the London Stock Exchange in September 2020 with a value of £5.4bn.

Earlier this month, THG announced sales for 2022 of £2.25bn.

John Goold, CEO of Kelso, said: "Matthew Moulding, a British entrepreneur, started THG from scratch in 2004, which has grown to over £2.0bn of revenue, employing c.8,000 employees the majority of which are in the UK.

"This transition from entrepreneurial start up to a large listed corporate is never easy but we think THG is now putting in all the building blocks to achieve the success it deserves."

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