Should you buy THG shares despite profit margins warning?

Highlights

• THG group’s shares fell sharply by 9 per cent on Tuesday after the group came up with cautious guidance for 2022 in its Q4 trading statement.
• It estimates its FY 2022 revenue growth rate to be between 22 to 25 per cent (constant currency), due to a tough H1 2021 comparable period and commodity prices in its Nutrition segment.

Retail and tech E-commerce group THG PLC’s (LON:THG), which was previously called The Hut Group shares, fell sharply on Tuesday after it announced a cautious 2022 outlook in its latest trading statement.

THG’s Q4 trading statement

The group’s Q4 2021 revenue rose to £711.7 million, from £559.8 million in Q4 2020, rising by 29.7 per cent on a year-on-year (YoY) constant currency basis (CCY). Its 2-year YoY CCY was a growth rate of 95.7 per cent.

This growth of 29.7 per cent was helped by faster momentum in its organic sales segment, during peak, which also helped in its FY 2021 revenue rise.

Its Q4 2021 ingenuity commerce revenue rose to £15.4 million from £7.3 million in Q4 2020, rising by 111.1 per cent on 1-year YoY constant currency basis, while its 2-year YoY CCY growth rate was higher by 415.0 per cent.

And its group revenue in FY 2021 stood at £2,178.3 million, compared to £1,613.6 million in FY 2020, which represented a 1-year YoY CCY growth rate of 37.9 per cent and a 2-year YoY CCY growth rate of 95.0 per cent.

Its FY 2021 ingenuity commerce revenue stood at £45.4 million, compared to £19.3 million in FY 2020, which was a growth of 135.2 per cent for 1-year YoY CCY and a growth rate of 512.3 per cent for 2-year YoY CCY.

The group’s number of live client websites increased to 187 in Q4 2021, from 163 in Q3 2021. And its Q4 2021 average recurring revenue per website increased to £0.24 million, up from £0.17 million in Q3 2021.

While its Q4 2021 recurring revenue rose to 72 per cent, up from 59 per cent in Q3 2021. And its Q4 2021 annual revenue run-rate was at £61 million compared to £44 million in Q3 2021.

2022 outlook

The group forecasts its FY 2022 revenue growth rate to be between 22 to 25 per cent on a constant currency basis.

The company, however cautioned it expected the early part of 2022 to be relatively tougher due to having H1 2021 as its comparable period when the world was faced with lockdowns. And that the role of record-high commodity prices played in its Nutrition business segment.

The group now expects its FY 2021 EBITDA margin to be between 7.4 and 7.7 per cent, lower than previous estimates primarily due to fluctuation in exchange rates, though it estimates its FY 2022 EBITDA margin to rise over the course of the year due to its automation-related investments made in 2021 which can help offset inflationary conditions.

Related Read: The curious case of THG Plc share price fall since IPO

THG PLC’s (LON: THG) share price performance

THG’s shares closed at GBX 167.70, down by 8.73 per cent on 18 January at 11:31 AM BST.  The group’s market cap was at £2,265.99 million as of date.

Image source: Refinitiv