Shares in a UK e-commerce firm backed by Softbank are in free fall


British Prime Minister Boris Johnson (L) will be shown around by The Hut Group Founder and CEO Matthew Molding (R) during a visit to a logistics center in Warrington, North West England, on December 10, 2019.

BEN STANSALL | POOL | AFP via Getty Images

LONDON – UK e-commerce company THG has said it has “no reportable reason” for a 35% decline on Tuesday.

The shares of the Softbank-backed company suddenly plummeted during late afternoon trading, posting its worst daily performance since it listed on the London Stock Exchange last September.

The move came following the company’s Capital Markets Day, which was designed to reassure investors and analysts that THG can change things, with the stock down 65% since the turn of the year.

In his presentation, which aimed to dispel concerns and explain THG’s Ingenuity selling platform, CEO and founder Matt Molding hit short sellers, but analysts were disappointed.

In a statement to the market on Wednesday, THG added that “no significant new information was disclosed at the event”.

“Since going public in September 2020, THG has consistently exceeded its IPO targets and has recently delivered strong first-half performance across all businesses, with consolidated sales of £ 958.8 million ($ 1.31 billion) , + 44.7% year-on-year, “announced the company.

“The group has a very strong liquidity position at the start of its main trading season with cash available as of December 30th.

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While Capital Markets Days are designed to help analysts and investors better understand certain aspects of a company, THG’s efforts “have opened their eyes for the wrong reasons,” said Russ Mold, investment director at UK online stockbroker AJ Bell.

“It appears that attendees did not get the level of information they wanted, and messages were quickly sent back to HQ to dispose of the stock,” Mold said.

“After going public with a lot of turmoil, the market now appears to believe that THG was grossly overvalued and that the liquidation of the deal raises more questions than answers.”

THG, formerly known as The Hut Group, sells vitamin, nutritional and beauty products and stocks brands like MyProtein, Lookfantastic and Mankind while licensing its technology. The 500p per share IPO was one of the biggest tech floats of 2020.

Since announcing plans in September to outsource the beauty business to focus on THG Ingenuity – an e-commerce platform that handles web sales and logistics for businesses to sell products directly to consumers the group’s share price plummeted.

SB Management, a division of Japanese tech giant SoftBank, announced in May that it would invest $ 1.6 billion in Ingenuity, a 19.9% ​​stake, while also taking a $ 730 million stake in THG itself .

A “puzzle for investors”

THG stocks initially began rallying on Wednesday before falling more than 10% and falling 4.6% by late morning. Mold suggested the valuation remains a “mystery to investors” after Tuesday’s free fall.

“On the one hand, sentiment towards the stock is incredibly weak and there is no point going against the tide once the market has decided that THG is a dud,” he said.

“On the other hand, investors now have the option of buying shares in a company at a price where the original excitement is now essentially free.”

THG Ingenuity initially caused a lot of excitement as key clients like Nestle and Unilever offered investors significant credibility.

Mold suggested that many product manufacturers now want direct service to the consumer, which means the growth prospects for the business are theoretically good.

SoftBank’s purchase option valued the Ingenuity division at £ 4.6 billion at current exchange rates, but at Wednesday morning’s share price the entire group was valued at around £ 3.15 billion, Mold said.

Mold said this would effectively mean investors could buy the beauty and nutrition activities while acquiring the technology and logistics offerings for “free”. However, the big question remains, what would each company look like as a standalone entity in terms of cost base, capital expenditures, and cash flow, he suggested.

“THG has been criticized for not being open enough about the financial collapse. Until she provides some answers, stocks could well remain under pressure as it is very difficult to properly value this business without the right information, ”he said.