18th Apr 2023 15:38
(Alliance News) - A private equity acquisition of THG PLC seems "likely", research house Edison commented on Tuesday, even as analysts took away some positives from the e-commerce platform's annual results.
THG, which trades as The Hut Group, reported a widened loss in 2022 on a small revenue increase, but it said revenue declined in the first quarter of the new year from a year before.
THG shares were down 18% at 78.56 pence each in London on Tuesday afternoon, returning more than half of the 32% gained on Monday on confirmation of a buyout proposal from Apollo Global Management Inc. The stock remains well below its 2020 debut price of 500p.
"THG had previously attracted interest from private equity, yet this time the appetite to agree to a deal looks to be much higher, and investor enthusiasm is reflected in the share price rally," commented Neil Shah at Edison.
"Apollo's proposal is as yet non-binding, but it looks like one of the UK's high-profile IPO disasters could soon be on its way to becoming private again."
On Monday, THG said it had received a buyout proposal from US private equity firm Apollo. THG noted that it is "a highly preliminary and non-binding indicative proposal", and it did not disclose the terms of the proposal.
Apollo now is required to announce its intention to make an offer or walk away by May 15.
THG on Tuesday provided no update on the Apollo takeover proposal; however, it said that its intention remains to move to the premium segment of the London Main Market.
Back in 2021, THG had said it planned such a move, but a year and a half later, it remains a standard listing. The 'golden share' held by Matthew Moulding, the founder and chief executive, prevented a premium listing at the time of its initial public offering in 2020. This means THG is excluded from FTSE UK indices.
On Tuesday, THG said the rights attached to Moulding's 'golden share' will be ceased in September.
Liberum said a move to the Premium segment of the Main Market "could provide a further catalyst for shares", but the investment bank said near-term market focus will be on the approach by Apollo. In response, Liberum raised its recommendation on THG shares to 'buy' with a 220p price target.
THG said revenue rose by 2.7% to GBP2.24 billion in 2022 from GBP2.18 billion in 2021, but its pretax loss ballooned to GBP549.7 million from GBP186.3 million.
Adjusted earnings before interest, tax, depreciation and amortisation amounted to GBP64.1 million, in line with guidance, and more than halved from GBP161.3 million the year before.
Looking ahead, THG expects full-year revenue growth across continuing divisions of low to mid-single digit. Adjusted Ebitda is expected to be in line with consensus, with a significant weighting to the second half of the year.
In the first quarter of 2023, revenue from continuing operations fell 5.6% to GBP457.4 million, with total revenue down 8.6% to GBP469.4 million.
"Whilst sales growth was negative during the period, this was largely as planned, as a result of prioritising higher-margin sales," THG said.
Liberum noted that THG's sales exit rate has improved and cost inflation is annualising, giving confidence that it will achieve market expectations for financial 2023.
Davy Research noted that THG guided for significant margin recovery in the year ahead. As a result, Davy sees "modest upside" to its current forecast for financial 2023 Ebitda.
CEO Moulding commented: "We continue to make good progress on executing our strategy of building a leading digital-first consumer brands group, powered by our own technology and global fulfilment operations.
"The challenging macro and inflationary environment required decisive action across the business with around GBP100 million of efficiency savings delivered. A much-improved outlook on many key cost inputs gives us confidence in an improved financial performance as the year progresses."
By Sophie Rose, Alliance News reporter; and Tom Waite, editor
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