New investor Kelso takes minority stake in ‘undervalued’ THG

THG shares lifted as activist investor Kelso takes minority stake in ‘undervalued’ e-commerce firm

  • Kelso bought 5m shares in THG, or a stake of 0.4% for £2.72million
  • This is Kelso’s first investment since it was set up only last year
  • It said THG was a ‘hugely exciting but significantly undervalued business’

Activist investor Kelso Group has snapped up a minority stake in ‘undervalued’ e-commerce business THG. 

In a sign of confidence in the future of the troubled online nutrition and beauty retailer, Kelso bought 5million shares in THG, or a stake of 0.4 per cent, at an average price of 54.5p, it told investors on Tuesday. 

The £2.72million investment is Kelso’s first investment since it was set up last year to ‘identify, engage and unlock trapped value in the UK stock market’.

Investment: Kelso said it believed that THG’s current stock market valuation did not reflect the ‘underlying value’ of the company

‘The board of Kelso believes that THG is a hugely exciting but significantly undervalued business,’ it said. 

‘Matthew Moulding the THG founder and CEO has built a business with true global scale in two global growth sectors of Nutrition and Beauty employing around circa 8,000 employees with 18 fulfilment centres shipping to 195 destinations.’

Earlier this month, THG issued a profit warning and announced a review of its loss-making divisions after missing sales targets, sending its shares tumbling.

THG shares were up 2 per cent to 55.5p around midday following the news.

However they remain down by around 57 per cent over the last year – and a far cry from their peak of 800p, reached shortly after floating on the London Stock Exchange in September 2020.

But Kelso said THG’s current valuation does not reflect the ‘underlying value’ of the company, with its nutrition division alone potentially ‘worth in excess of the entire current market capitalisation of THG’.

‘This is evidenced by the valuations of deals in that particular sector in the last few years, caused in part by the shift in consumption away from chocolate and sugar to health and nutrition, a trend which we believe will continue,’ Kelso explained.

THG’s nutrition business, which includes the MyProtein and MyVegan brands, raked £672million in sales last year.

The group’s beauty division saw sales top £1.2billion, helping total revenues rise 4.1 per cent to a record £2.25billion in 2022.

However, this fell well below guidance of 10 to 15 per cent, which THG had lowered in September, and marks a sharp slowdown from 35 per cent growth in 2021.

THG has also been hit by a slew of corporate governance concerns and questions about its lofty valuation. 

Last week, it reshuffled its top team in a bid to revive its fortunes.

Kelso’s chief executive, John Goold, said THG was taking the right steps to become successful. 

‘Matthew Moulding, a British entrepreneur, started THG from scratch in 2004, which has grown to over £2billion of revenue, employing c.8,000 employees the majority of which are in the UK,’ Goold said.

‘This transition from entrepreneurial start up to a large listed corporate is never easy but we think THG is now putting in all the building blocks to achieve the success it deserves.’

Russ Mould, investment director at AJ Bell, commented: ‘THG chief executive Matthew Moulding doesn’t seem the type to welcome interference in his business, but other shareholders may welcome a new party putting pressure on the board to make changes.’