THG (LSE: THG) has had a torrid time this year. Formally known as The Hut Group, its market value has plunged by nearly 75%, from a share price topping 800p in January, to around 200p in November.
Normally, I don’t go bottom-fishing for shares that have fallen so sharply. Usually, share prices fall this much for very good reason, and risks might even be greater at these lower prices.
But is THG different? And is there hidden value in the shares now that the price is 75% lower?
THG shares crash
THG is an online retailer, so it’s not immediately obvious why the share price has crashed so much. Online retailers have benefited hugely over the pandemic period as shoppers switched from stores to the internet. In fact, THG’s revenue grew 41.5% in the 12 months to December 2020, and it’s forecast to grow by 37% this year. All seems in order then.
But with THG’s capital markets day event on 12 October, the share price crashed on the day by almost 35%. Management released a formal market update the day after stating no new material information was disclosed, and saw no reason for the steep fall in the share price. It’s an unusual situation for management to feel compelled to do this.
THG Ingenuity
It’s the small-but-growing division THG Ingenuity that’s causing a stir. Ingenuity is an end-to-end technology platform that provides e-commerce solutions for consumer brand owners, including offering marketing services, brand development and global fulfilment. But investors didn’t seem to like the detail given at the capital markets day
There’s a lot riding on the success of THG Ingenuity. Japanese company SoftBank has an option to invest $1.6bn into the Ingenuity division, acquiring a 19.9% stake in the process. The deal is anticipated to complete in the first half of 2022, according to Moulding.
Governance issues haven’t helped THG either. It’s not a great sign when a company’s CEO also operates as the chairman of the board, as Moulding does here. Not only this, but Moulding and his wife originally pledged their shares against a £100m personal loan from Barclays. In the event of a default, Barclays would have owned 18.8% of the company. Although this was disclosed in the IPO prospectus, it’s still unusual.
Time to buy?
At the end of last week, Zillah Byng-Thorne, CEO of Future, bought 32,291 shares at 200.2p. This was actually at a premium of about 2% to the prior closing price. Shares of Future have had a stellar run under Byng-Thorne’s leadership, so this is a vote of confidence in THG.
However, BlackRock, the trillion dollar asset manager that had been THG’s second-largest shareholder, sold shares at a discount earlier in the week. Opposing views, then, from these smart investors.
For me, there are just too many amber flags here (some maybe even red). With so much riding on THG Ingenuity, and no guarantee that it will reach anywhere near the multi-billion pound valuation that Moulding claims it will, I’ll carry on watching from the sidelines.
