The curious case of THG Plc share price fall since IPO

Highlights 

• The Hut Group has seen a dramatic decline in its stock price in the last few months; trading way below the IPO listing price of GBX 500 per share.
• The share price tumbled more than 65% in the last few months and currently quotes less than half the IPO price.

THG Plc (LON: THG), formerly known as The Hut Group, has seen a dramatic decline in its stock price in the last few months. The company’s stock was at GBX 197 as of 11 November 2021 closing, which is way below the IPO listing price of GBX 500 per share in September 2020.

The company had a valuation of close to £5.4 billion after listing on the London Stock Exchange in September 2020. The stock price further rose over 60% to give 52 weeks high of GBX 837.80. However, the share price tumbled more than 65% in the last few months and currently quotes less than half the IPO price. THG Plc’s current market cap stands at £2,394.9 million as of 12 November 2021.

Source: Refinitiv

The company operates in the consumer products segment offering its customers beauty, nutrition, and wellbeing products. It also provides an end-to-end e-commerce technology solution to third-party brands. Besides its core business, the company also operates hotels, health clubs, spas, and salons. The company is run by its founder Matt Moulding.

Let us look at some of the scenarios and the company’s decision that led to a decline in stock price:

• Acquisition: In September 2021, the company, while declaring its half-yearly result, announced the acquisition of Cult Beauty, a UK-based online beauty retailer, for £275 million; while the acquisition in itself was not a negative trigger, but it did put pressure on the company’s balance sheet.

• Profitable business spin-off: The Hut Group Plc’s half of the revenues comes from the beauty division. THG Beauty segment contributed 55.9%, i.e., £460.8 million in revenue in the first half ended 30 June 2021. However, the company expressed its plans to spin off the beauty segment and list it as a separate entity in 2022, which was a bit confusing for the investors as such a significant change was coming within one year of listing and added to the stock price decline.

• Outlook and lower profit margins: In its third-quarter trading update, the company reported a revenue of 507.8 million. However, it warned that the profit margins might be lower due to currency fluctuations leading correction of over 21% following the result announcement.

• Sell-off by Private Equity Investors: Before listing on the exchange, many private equity and venture capital funds has invested in the company. However, some of the early backers of the company decided to book profit and sell their stake. Venture capital fund West Coast Capital Assets sold 4.1 million shares, while Balderton Capital sold 27.4 million shares. Most recently, the company’s largest institutional investor, Blackrock, sold 58 million shares, almost halving its 10% stake in the company leading to selling pressure in the stock.

Due to a constant share price fall, the company CEO, Matt Moulding, has recently given away his special share status called golden share, which the CEO retained at the time of IPO and allowed him to block any hostile takeover for three years.

The company’s CEO has blamed short-sellers for the share price fall despite data suggesting minimal shares are out on loan to short-sellers. Moreover, in the most recent interview, the company CEO hinted that he could take the company private, leading to a volatile share price move.

According to market experts, investors are losing confidence in the company because of its low transparency in disclosures. Also, the company’s management has missed the opportunity to clarify several doubts and confusion of the investors in its Capital Market Day.