31st Jan 2023 11:14
(Alliance News) - Kelso Group Holdings PLC believes better days for THG PLC are coming, though Chrysalis Investments Ltd has already called time on its investment in the beauty products seller.
Kelso is an investment firm focused on UK small and mid-cap companies. THG is the company's first such investment. Kelso made its debut on the London Stock Exchange as Insight Business Support PLC back in July 2021. In November of last year, it renamed to Kelso.
It purchased 5.0 million shares for a 0.4% stake in THG. Kelso said it paid an average of 54.5p per share, so forking out around GBP2.7 million in total.
THG shares traded 3.2% higher at 56.16 pence each in London on Tuesday morning, though still down almost 90% from its initial public offering price of 500p.
THG is "exciting but significantly undervalued" according to Kelso. It drew attention to plans by THG to give its 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," the investor said.
THG's stock market value does not reflect the potential of its divisions, Kelso believes.
"THG has become the latest company to attract an activist investor," AJ Bell analyst Russ Mould commented.
"THG Chief Executive Matthew Moulding doesn't seem the type to welcome interference in his business, but other shareholders may welcome a new party putting pressure on the board to make changes."
Kelso shares were flat at 5.00p each in London on Tuesday morning.
While Kelso has bought in, another London-listed investor has relinquished its stake in the company.
Chrysalis Investments on Tuesday said it "fully divested" its stake in THG during the financial year that ended September 30.
Chrysalis Investments shares were down 4.2% at 85.30p.
"Some of our investments, as in any private capital portfolio, have not met original expectations," Chrysalis Chair Andrew Haining said.
THG falls under that category, as does Revolution Beauty Group PLC.
"THG's share price suffered from inflation-induced downgrades to profit expectations and Ingenuity performing less well than expected. The investment adviser felt it more value enhancing to redeploy capital elsewhere," Haining added.
Life as a listed company has been far from plain-sailing for THG since its debut in September 2020.
A capital markets day in October 2021, made to shore up investor confidence, spooked traders instead. THG's stock has faced heavy selling pressure since then.
Trading updates since then have been mixed at best. Earlier this month, THG cut earnings guidance. It now expects that adjusted earnings before interest, tax, depreciation and amortisation for 2022, on a continuing basis, will be GBP70 million to GBP80 million, in line with current market expectations.
Back in September, THG had guided 2022 adjusted Ebitda of GBP100 million to GBP130 million, so the new range is down by 30% to 38%. Adjusted Ebitda in 2021 was GBP161.3 million, while THG's pretax loss was GBP138.1 million.
By Eric Cunha, Alliance News news editor
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