THG takeover rumours: Should you hold on to the stocks?

February 08, 2022 08:57 PM AEDT | By Rishika Raina

Takeover rumours

As per media reports, two private equity firms Advent International and Leonard Green are pitching to take over the e-commerce group previously known as The Hut Group. Speculations about the takeover have been doing rounds since last year. However, no statement has yet been made about the takeover interest by either THG or any of the private equity firms.

In September 2020, the Manchester-based firm got listed on the main market of the London Stock Exchange. Back then, BlackRock, Henderson and Merian had bought its shares for a price of around 500p. The shares did peak at around 800p, but today the value is approximately a fifth of the IPO price.

According to market experts, THG boss Matt Moulding is not able to handle the responsibility of being a public CEO, and instead of being accountable for the value destruction, he is planning to take the company private.

Potential takeover of THG by two private equity firms

The online retailing platform sells fast moving consumer goods, particularly health and beauty products. It also controls brands such as MyProtein and Cult Beauty. On 18 January 2022, THG released its Q4 trading update for the period ended 31 December 2021. The group reported a strong revenue of £2.2 billion in FY 2021, representing 37.9% Y-o-Y growth and 95.0% 2-year growth. Due to unfavourable movements in the foreign currency, the expected adjusted EBITDA margin for FY 2021 fell short of the market expectations of 7.9% and was between 7.4% to 7.7%.

However, adjusted EBITDA margins are expected to go up throughout FY 2022 as the group has made huge investments in 2021 into automation and Ingenuity Commerce.

THG’s share price performance

After the emergence of reports of the potential takeover, THG shares were up by around 16% on 4 February. However, this rally was short lived, and the shares sank by more than 6% on 7 February. Since its London listing in 2020, THG shares have plunged by over 80%, with Moulding accusing the short sellers of the same. The shares were also hit further in January when Citi Bank downgraded its profit guidance.

The market cap of the Manchester-based company stood at £1,653.14 million, and it has provided a negative return of -81.44% to its shareholders over the last one year as of 7 February 2022, while its year-to-date return stood at -41.71%. THG PLC’s (LON: THG) shares closed at GBX 133.60, down by 1.33% on 7 February 2022.

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