THG (LSE: THG) shares have been skyrocketing in the last few months. Since May, the share price is up 89%. I’d say the signs are that this might be the last time I could buy in below £1.
The shares currently trade for 97p. That’s a big discount on previous highs. They were offered at IPO for £5 each and traded for more than that for the better part of a year. Compared to the all-time high of £7.96, today’s price is 88% off.
Why is this? Well, THG is struggling to turn a profit. The latest full-year results saw a £194m pre-tax loss due to rising costs across the supply chain. In particular, the increased cost of whey made a significant dent into its MyProtein division.
But there are reasons to be cheerful.
Revenues are still growing. Full-year 2024 is forecast to hit new records and the company trades at around 0.5 times sales. That’s exceptionally cheap for a firm that has good growth prospects.
| 2020 | 2021 | 2022 | 2023 (forecast) | 2024 (forecast) | |
| Revenue | £1,610m | £2,180m | £2,240m | £2,200m | £2,390m |
| Pre-tax income | -£7m | -£56m | -£194m | -£151m | -£112m |
CEO and founder Matt Moulding would agree. He’s been very keen to point out how undervalued his firm is on many key metrics, taking a few shots at the City in the process, often from his sometimes entertaining, sometimes incendiary Linkedin feed.
THG’s issue, he says, is that it operates across three separate divisions. His company is in the e-commerce space, selling stuff online.
It includes websites like Myprotein in THG Nutrition and LookFantastic in THG Beauty, and there’s also THG Ingenuity which supports external e-commerce brands. The problem is, supposedly, it doesn’t get valued properly for being spread too thin.
CEO and the City
The City, in turn, has had big concerns over its governance. Moulding’s ‘golden share’ was particularly problematic. It allowed him to veto any takeover attempt and also prevented the firm from being placed on the FTSE 250 or the FTSE 100. Perhaps as a result of the ire it drew, he recently gave it up.
So where are we now? Well, the speculation is that the company could be taken private. Moulding has hinted that he’d prefer this option if the price could be met.
He said that “just about every major PE firm has enquired about taking THG private,” on the issue, a reference to how cheap the shares are.
Takeover chances?
Private equity firm Apollo Global Management did register a concrete interest, although it came to nothing. Either way, if a takeover did happen, shareholders would probably get a good reward from any shares they bought below £1.
But am I buying? I don’t think so. I aim to buy stocks that I’d hold for 10 years or more, and the chances of THG going private in the near future put me off.
That said, I think there’s a lot of value here, and despite any current issues, it’s good to see a British success story in the markets. I’ll be keeping a keen eye on what comes next.
