City’s crisis of confidence in Matthew Moulding’s THG is real – and getting worse

Shares plunge 35% as THG sticks to ambition to demerge beauty and nutrition operations

Last modified on Tue 12 Oct 2021 14.40 EDT

“No material new information will be disclosed today,” declared THG in advance of its big City presentation. Maybe that was the problem. The 35% plunge in share price, which definitely counts as “material”, says that the City’s crisis of confidence in Matthew Moulding’s creation is real and getting worse.

The “capital markets event” for investors was informally billed as Moulding’s fightback against the wicked short-sellers, who had supposedly been pummelling the stock in the past month. Instead, THG, or The Hut Group as it was, seems only to have handed its doubters more ammunition.

THG Ingenuity, touted as a mini-Ocado of marketing and logistics for third-party consumer brands, was the focus of the presentation, but it has become hard to separate hype from reality. In the last half-year numbers, the division recorded revenues of only £85.8m, hence outsiders’ head-scratching over how SoftBank of Japan could possibly place a theoretical valuation on the unit of £4.5bn, as it did earlier this year through an option agreement to buy a 20% stake.

Whatever Moulding said on Tuesday, he did not unravel that particular mystery. The critical piece of information from a valuation perspective is the terms on which Ingenuity trades with its larger beauty and nutrition divisions, but the big reveal is now promised only next year.

Meanwhile, THG is sticking to its ambition to demerge those beauty and nutrition operations, for reasons that are hard to fathom. The idea, supposedly, is to give each mini-company its own acquisition currency but, to outside eyes, the model looks a recipe for complexity and share dilution. An independent chair may help restore some faith but Moulding, one assumes, is not in a mood to shed any top jobs. He does not help himself at times.

GlaxoSmithKline should go for clean demerger

Roll up, then, for private equity’s most ambitious takeover project in years? That, or something like that, was the prospect raised by Bloomberg’s report that the world’s big private equity players are swarming around GlaxoSmithKline’s consumer products division, a business that should be worth £40bn-plus in independent form.

The idea would be to nip in with an offer before the demerger of the Panadol-to-Sensodye unit, scheduled for the middle of next year. It is not hard to imagine a bidder’s pitch: save yourself the bother of a roadshow, we’ll give you tomorrow’s value today.

The tale was briefly good for a 3% nudge in GSK’s share price but GSK’s board, while uttering the necessary lines about being mindful of “fiduciary duties to evaluate any alternative option”, would be well advised to exercise extreme scepticism.

Even for the likes of Blackstone, Carlyle, CVC and KKR – four of the firms named in the report – a £40bn mouthful is surely too big to digest alone. Consortium offers are complicated. A negotiation with a shifting cast of financial engineers with differing priorities sounds messy and uncertain.

Then there is the key question of price. A demerger is a clean way to demonstrate what the consumer division would be worth. Is £40bn right, or might £50bn on debut in the FTSE 100 index be possible? A bidder’s tactical motivation in moving now would probably be to try to avoid a full takeover premium.

From the point of view of protecting value for GSK shareholders, plan A looks the safest course. Let the demerger happen. If private equity barons want to offer silly money after a base valuation has been established, they would be free to do so. They probably won’t.

Spare us Marley’s lazy excuse for pulling flotation

“Market volatility” is the catch-all phrase that companies trot out when they pull their flotations, or IPOs. Irritatingly, though, they never say which market they’re talking about.

Marley, a maker of roof tiles that was hoping to be valued at £500m, presumably didn’t mean the stock market in general, because a surprising feature of current conditions is the lack of volatility. The FTSE 100 index, for example, has traded within a tight range of 7000-7200 points since late July, with only a couple of days of deviation.

Marley presumably means the specific worry that the housebuilding sector is the next in line to be clobbered by labour and materials shortages. Most big housebuilders’ shares have fallen 10% or so in the last fortnight. In the circumstances, it makes sense for Marley’s private equity backers to yank the listing. But, please, spare us this lazy “volatility” line.

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