The Hut Group LON:THG, is in its ‘terrible twos’ having listed in September 2020. The company has actually been in existence for around 19 years – another landmark age – and when it listed in 2020 for GBP5.4bn, was one of the biggest floatations of the year.
Today it’s worth around GBP785m and the Manchester-based, e-commerce business has built a portfolio of beauty brands including Cult Beauty, Lookfantastic and My Protein.
The Armchair Trader has been covering its progress and seen its valuation fall from more than GBP6bn to what it is today. The market has been somewhat disenchanted with the stock for a while – as the chart shows below – but the online beauty brand retailer has been getting a bit of love of late.
The company has had a bit of a rally since the start of the year, offering a 36.1% return, but over one-year, has fallen some -30.8%. Unlike some of its e-commerce peers, THG did not have any exposure to Silicon Valley Bank, which collapsed last week.
Marginal improvement
The company opened trading today at 59.9p and has been bubbling around the 60s for a few weeks with shares trading in the range of 31.15p to 159p for the past year. Sixty-pence is around double what it was six months ago, but a fall-back from around 90p a year ago and a long, long way from the 500p the firm debuted at.
We were expecting a turnaround after a similar rally this time last year, where we reported on a 25% surge in THG’s stock price, on rumours of a takeover. Private equity shops had been circling the company for a while and back in May 2022, management rejected a GBP2bn bid, at a price 170p a share from Belerion Capital and King Street Capital Management.
The company’s management said that the GBP2bn bid “significantly undervalued the company and its future prospects” despite the bid offering a near 50% premium on where the share price was at the time. Shares jumped on the rejection, hitting a peak of 158.9p on 26th May, but when the market realised that other potential buyers weren’t going to emerge and spark a bidding war, they dropped THG like a hot potato and shares plummeted to around 74p by mid-June.
Traffic has been one way since until November, when THG appeared to have have got a second wind and started an anaemic rally.
Aggressive acquisition
Looking away from the hurly-burly of mergers and acquisitions (which THG has not been backwards about coming forwards itself, having built its business on aggressive acquisition – near 50 purchases since 2009 – and following the high energy and high visibility of its CEO and founder, Matthew Moulding), the business has shown sustained growth and innovation over the past few years.
In its latest trading statement from January 2023, THG reported record sales of GBP2.25bn in FY22, with 9.4% growth in THG Beauty and THG Nutrition primary territories. The company also manages its costs well making GBP100m of saving last year and targeting GBP30m more of cost saving this year. The company appointed a new finance chief, Damian Sanders, who stepped up from a NED role to CFO in January, having had prior experience at Deloitte.
THG has captured the zeitgeist of a new consumer, that doesn’t shop in brick and mortar, established boutiques and picks up trends and techniques from a plethora of sources, included, but not limited to TikTok and YouTube. It has curated a loyal following – 80% of its sales came from repeat custom.
Tech platform
But the company doesn’t just sell lipgloss, eyeliner and vitamin pills; it’s a tech company in its own right, having developed THG’s Ingenuity, an end-to-end tech platform for online retailers, which it has licenced out. Although the software-as-a-service product still is a modest contributor to THG’s revenues, contributing GBP208m to overall group revenues of GBP2.2bn, at the close of the year, it has seen a growth in revenue of 51.6% over the past two years.
With a strong cash-in-hand position, some GBP470m at the year’s end, and a GBP170, newly negotiated revolver to draw on, whilst at the same time cutting group net debt from GBP200m to GBP160m, THG is in a more than comfortable position for 2023.
Moulding has often said to his legion of social media followers that he regrets taking THG public, but from the origin of first selling CDs and DVDs from a Manchester warehouse, into selling hair care products, to making strides into the vast potential markets in Asia, the company has created a substantial presence for itself, and no doubt suitors will return with another offer.
