New investor Kelso takes minority stake in ‘undervalued’ THG

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THG shares soar as activist investor Kelso takes minority stake in ‘undervalued’ e-commerce company

  • Kelso bought 5 million shares in THG, or a 0.4% stake for £2.72 million
  • This is Kelso’s first investment since its inception just last year
  • It said THG was a “hugely exciting but significantly undervalued company.”

Activist investor Kelso Group has acquired a minority stake in the ‘undervalued’ e-commerce company THG.

As a sign of confidence in the future of the struggling online food and beauty retailer, Kelso bought 5 million shares of THG, or a 0.4 percent stake, at an average price of 54.5 pence, it told investors on Tuesday. .

The £2.72 million investment is Kelso’s first investment since inception last year to ‘identify, activate and unlock captured value in the UK stock market’.

Investment: Kelso said he believes THG’s current stock valuation did not reflect the company’s “underlying value”

“The Kelso Board believes that THG is a hugely exciting but significantly undervalued company,” it said.

“Matthew Molding, the founder and CEO of THG, has built a company with true global scale in two global growth industries of food and beauty, with approximately 8,000 employees and 18 fulfillment centers shipping to 195 destinations.”

Earlier this month, THG issued a profit warning and announced a review of its loss-making divisions after missing sales targets, causing its shares to plummet.

THG shares rose 2 percent to 55.5 pence by noon after the news.

However, they continue to fall by about 57 per cent over the past year – and a long way from their peak of 800 pence, which was reached shortly after going public on the London Stock Exchange in September 2020.

But Kelso said THG’s current valuation does not reflect the “underlying value” of the company, as only the food division may be “worth more than THG’s total current market cap.”

“This is evidenced by the valuations of deals in that specific sector in recent years, driven in part by the shift in consumption from chocolate and sugar to health and nutrition, a trend we believe will continue,” explains Kelso.

THG’s nutrition division, which includes the MyProtein and MyVegan brands, generated £672 million in sales last year.

The group’s beauty division saw sales rise to £1.2 billion, boosting total sales by 4.1 per cent to a record £2.25 billion by 2022.

However, this fell well short of the 10 to 15 percent guidance that THG had cut in September, marking a sharp slowdown in growth from 35 percent in 2021.

THG has also been hit by a slew of corporate governance concerns and questions about its high valuation.

Last week, it reshuffled its top team in an attempt to revive its fortunes.

Kelso’s CEO, John Goold, said THG was taking the right steps to become successful.

“Matthew Molding, a British entrepreneur, started THG from scratch in 2004, which has grown to over £2bn in revenue, with around 8,000 employees, the majority of whom are UK based,” said Goold.

“This transition from an entrepreneurial start-up to a large publicly traded company is never easy, but we believe that THG is now bringing in all the building blocks to achieve the success it deserves.”

Russ Mold, investment director at AJ Bell, commented, “THG CEO Matthew Molding doesn’t seem the type to welcome meddling in his company, but other shareholders may welcome a new party putting pressure on the board to make changes.”

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