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Under pressure THG’s shares sink 20% as SoftBank appointment falls flat

·3-min read
THG founder and CEO Matt Moulding  (Handout)
THG founder and CEO Matt Moulding (Handout)

Shares in under pressure e-commerce company THG sunk today further today after attempts to appease investors concerns about governance fell flat.

THG today beefed up its board and shared more detailed information about its controversial platform business Ingenuity as it tried to soothe investor nerves about plans to refocus efforts on the division. Shares were down 20% by late afternoon.

In a third quarter trading update, THG said sales at Ingenuity were up 44% to £51 million. Momentum in the division helped drive a 34% growth in underlying revenue to £507.8 million.

Ingenuity is a platform that handles everything from website design to payments and delivery for brands. It works with clients such as Nestle. Ingenuity is one of three divisions within THG and the company said in September it planned to spin out its two other divisions - Beauty and Nutrition - and focus on the small but fast growing Ingenuity. The deal was underpinned by a complex investment led by SoftBank that included an option for the Japanese investment company to buy 20% of Ingenuity at a £4.5 billion valuation.

That deal spooked the market, with investors and analysts concerned about the lack of information on Ingenuity and the unproven nature of the business. Ingenuity currently accounts for just a tenth of THG’s revenues, while Beauty delivers around half.

The jitters added to preexisting concerns around corporate governance at THG and shares sunk 60% after the announcement, including a 35% slide in one day.

THG today shared more details on Ingenuity in a bid to address concerns. The company said Ingenuity now had 163 customers, up from 133 in the second quarter, and was targeting 400 by the end of next year. Recent sign-ups include Molton Brown owner Kao Group.

Analysts and investors have concerns about how much of Ingenuity’s revenue comes from non-reoccurring set-up costs rather than ongoing sales made over the platform. THG said 59% of Ingenuity’s revenue was reoccurring in the third quarter, up from 55% in the prior quarter. THG said it was confident that Ingenuity would hit sales forecasts for the year and was on track to exceed 2022’s forecasts of £90 million by between 20% and 25%.

However, analyst Simon Bowler at Numis flagged concerns about slowing growth at THG’s Beauty business.

“Improved disclosure on Ingenuity KPIs and the strong order book is encouraging but fails to offset the worsening momentum and worsening cash profile of the core businesses,” he said in a note following a call with THG management.

THG has been beefing up its corporate governance in response to the share price slide, with founder and CEO Matt Moulding agreeing to give up his ‘golden share’ in the business and step aside as chairman. The company said today that headhunters Russell Reynolds Associates have been hired to hunt for an independent chair.

THG today also appointed a new non-executive director: SoftBank managing director Dr. Andreas Hansson. The appointment, first reported by Sky News, will soothe concerns that the SoftBank deal could fall through. Analysts had pointed out that the level at which SoftBank’s Ingenuity option was priced saw the division valued at more than the entire THG business after the recent share price slide. The market currently values Ingenuity at zero.

Dr. Hansson said: “Since our initial investment, the technological capability of Ingenuity has proven compelling for several portfolio companies. There is a clear need for a global, purpose-built and end-to-end e-commerce platform, we believe that Ingenuity has the right suite of products to serve this market, and we continue to be confident about our investment in THG and the Ingenuity investment opportunity.“

Moulding said: “Our experience with Andreas and the entire SoftBank team has been first-class and this appointment is testament to the strength and depth of the partnership that we have developed. The separation of Ingenuity remains on track for H1 2022.”

Shares whipsawed on the announcement: the stock initially rose 5% before plummeting 20% to 247p. The stock floated at 500p a year ago.

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