Stellar Debut of the Hut Group- Can It End the IPO Dry Spell Of 2020?

  • September 18, 2020 10:04 AM BST
  • Team Kalkine
Stellar Debut of the Hut Group- Can It End the IPO Dry Spell Of 2020?

Summary

  • Shares of THG were up by around 30 per cent from their IPO price of 500 pence on the listing day
  • The IPO size was around £1.88 billion, which comprised 184,000,000 new Shares from a total of 376,273,998 shares.
  • Two major IPOs expected this year are Guild Esports and Jaguar Land Rover

Manchester-based online health, beauty and nutrition retailer, The Hut Group went public on the London Stock Exchange on 16 September 2020. The Hut Group is not only one of the UK’s biggest digital success stories but also a global player in ecommerce. THG Holdings Plc (LON: THG) traded at GBX 581.90, on 18 September 2020 (9:04 AM GMT+1)

It was a historic moment for the other UK and European technology businesses as there was suddenly a new life in the primary market, shares of THG surged almost 30 per cent from their IPO (Initial Public Offering) price of 500 pence on their debut on the London Stock Exchange. The company’s opening valuation was around £5.4 billion, which was quite impressive, given the prevalent condition of the economy. The IPO reportedly received multiple levels of oversubscription and the company’s stock skyrocket on its debut. Matthew Moulding, the chairman and CEO of the company, who own 25 per cent of the company became the new UK retail billionaire. The IPO size was around £1.88 billion, which comprised 184,000,000 new shares from a total of 376,273,998 shares.

The issue was the first major listing on the London market since the start of the pandemic. There has been a complete halt in new listings all across the world, and the stellar listing of Hut Group has ended the dry spell and one of the worst years for the IPO market.

THG-Business and The Motive For Listing

The British e-commerce company operates in a DTC (Direct-to-Consumer) space and sells Fast-moving consumer goods (FMCG) through its proprietary platform. The company started as an entertainment business and later graduated to e-commerce business.

Over the course of 16 years, the company has become one of the world’s largest online retailers in beauty and nutrition. The company has an all-in-one growth platform, THG Ingenuity, which combines e-commerce technology, hosting, translation, and complete fulfilment infrastructure.

(Source: Company’s IPO prospectus)

The company’s revenue was up by more than 35 per cent in the first half of 2020 in comparison to the previous year. THG has a lot of business coming from international sales; therefore, the company announced a partnership with Singapore Airlines in May 2020 to remove its reliance on scheduled passenger services along with recent unprecedented disruption across the airline industry. The company reportedly bought two dedicated cargo planes under its newly launched service ‘THG Air’. It strives to operate dedicated cargo flights to service its international clients in the Asian region.

As the company has grown in size, the ‘think-tank’ of the company was looking to secure more liquidity options. The management of the company then decided to go public. An IPO on the London Stock Exchange is likely to ensure that a lot of money flows into the balance sheet and would fuel the next phase of growth for the company.

Must read: Upcoming IPOs On the London Stock Exchange

IPO Market has slowed down

London’s IPO market has been very sluggish this year with a handful of companies being listed till date since the beginning of the year. The onslaught of the coronavirus pandemic is a major factor which has brought the IPO market to a screeching halt.

Another major reason that has slowed down the IPO market is Brexit. Companies with headquarters in the EU had been in a dilemma and contemplating various issues before going for an IPO in one of the largest stock exchanges across the world. A hard Brexit could deter potential market participants across the spectrum.

However, the IPO of THG has given a new ray of hope for the new listings in waiting, especially the technology companies. The technology sector is one of the few sectors which have witnessed the minimal impact of the novel coronavirus. Industry experts believe that only innovation can help the UK climb out of recession. Notably, the UK’s GDP fell by more than 20 per cent in the April to June 2020 quarter, according to the Office of National Statistics.

The IPO of THG has proved that Technology companies can achieve multi-billion valuations in the London stock market. High-growth innovative and technology companies have always been in demand in the UK.

Expected IPO’s by the end of 2020

There are many companies which will speed up their plans for listing. David Beckham, England’s famous footballer, co-owns a company known as Guild Esports, which is planning to go public by floating nearly 40 per cent of its shares in October to leverage upon the growing popularity of online gaming. The esports company aspires to become the first esports organisation in the UK to go public and raise around £20 million to achieve its next leg of growth.

The Iconic British car brand, Jaguar Land Rover, owned by Tata Motors has been investing heavily on developing electric and hybrid mobility solutions. The disruption of the supply chain from China along with the uncertainties arising out of Brexit has been a double whammy for the company. The company is expected to enter the London Stock Exchange via an IPO by the end of this year.

Conclusion

The catastrophe caused by the novel coronavirus along with prevalent uncertainties in the UK market, has deferred companies from going public. The coronavirus pandemic has weighed down heavily on the revenue visibility of the companies. So far, 2020 has been not so good for the IPO market on the London Stock Exchange. The post-Brexit outlook seems a bit gloomy, and therefore, the IPO activity has been sluggish for a considerable amount of time. The companies aspiring to go public have put off their fundraising plans until the trading environment improves. However, the recent IPO of THG has proved that the companies with a global client base and appealing business proposition still hold demand despite the grim economic outlook of the economy.

 

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