Top investors slash stakes as roof falls in on Hut Group: Shares sink below float price after Goldman Sachs offloads £180m
Billionaire: E-commerce entrepreneur Matthew Moulding, with wife Jodie
Shares in billionaire Matthew Moulding’s beauty to fitness e-commerce giant The Hut Group have gone into free fall, sinking below last year’s £5 float price for the first time.
The rapid decline has left investors nursing heavy losses and seen a number of major banks and investors sell their stakes as the price plummeted to record lows.
US investment bank Goldman Sachs appears to have slashed its shareholding by a third in recent days – offloading at least £180million worth of stock – while US investment giant The Capital Group has sold more than half its stake, according to stock market data.
French bank Credit Agricole and German giant Deutsche Bank have also significantly reduced their stakes.
Manchester-based Hut Group – set up by self-made Moulding in 2004 – floated on the London Stock Exchange to much fanfare just over a year ago with investors piling into a stock that promised to deliver a gateway into untapped e-commerce markets.
The group has also proclaimed its technology capabilities as its secret weapon, subsequently attracting investment mogul Masayoshi Son’s SoftBank in a deal that could ultimately be worth $2.3billion.
THG said it would use $1billion in cash raised in May, including from SoftBank, to ‘execute an advanced pipeline of strategic M&A [mergers and acquisitions]’.
Investors cheered as the shares, which surged on the day of the float, peaked at £7.99 in January. But the dream for shareholders – many of whom were attracted by the group’s brands, including beauty shopping website Lookfantastic and supplements firm Myprotein – has begun to turn stale.
The share price has plummeted by £2.29 – a third of the price – in just three weeks, erasing £2.7billion from the company’s value. The price dropped to a low of £4.53 on Friday as it plunged below the £5 benchmark for the first time, closing at £4.55. Shares are down 43 per cent from their high in January.
City sources say a series of shock announcements, which have pointed to a break-up of the group, appear to have left investors feeling increasingly cold as e-commerce firms feel the squeeze.
The emergence of the $730million (£540million) SoftBank stake in May was warmly greeted at first. But SoftBank’s $1.6billion option to buy a fifth of THG Ingenuity shares – despite sales of just £18million in the first half – set the firm on course for a break-up, something that was not on the cards when the group came to the markets last year.
And then last month, THG said it would first spin off its beauty business – putting it ahead of Ingenuity in the group’s separation plans.
City sources said the timing of the announcement of the complex plan to split the e-commerce businesses from the technology division could not have come at a worse time as internet firms including Asos, Boohoo and AO warned of rising costs, hitting share prices.
One said: ‘When it came to the market last year, it was flavour of the month. The high street was falling apart and people were lapping this stuff up. But e-commerce is getting a kicking at the moment and people are having a second look at what they’ve bought into. When a firm’s success is so firmly based on acquisitions, there is a view that when you look too closely there is a bit of smoke and mirrors going on.’
He added: ‘At the end of the day, THG is an M&A vehicle for e-commerce businesses. Things have gone a bit quiet on that front and it has some way to go on building the technology business, which it is now saying it wants to separate into this brilliant new entity.’
Another City dealmaker said: ‘The Hut’s on fire – and not in a good way.’ He said he was ‘surprised’ by how soon the SoftBank option to buy shares came after the float, adding: ‘That now seems to be the main driver of the corporate strategy, but a lot of the valuation is now pinned on something that is still in its infancy.’
Director for retail research at Numis, Simon Bowler, warned investors two weeks ago to reduce their stakes in the business after delivering a sober analysis of the group’s value. The shares have now sunk below even his then pessimistic £5.20 a share forecast – far below some other forecasts, which have valued THG at £10 a share or more.
If investors had reacted to his warning the day his report was issued, they would have saved themselves around £1.40 per share in losses. Bowler said a combination of reduced City forecasts at other e-commerce businesses and a lack of clarity over the future relationship between Ingenuity – which will hold the group’s tech-based intellectual property – and the other businesses in THG’s stable were all partly to blame.
Also hanging over valuations of the group’s individual divisions is that it currently withholds profit margin information for each of its divisions – something it has promised will soon change.
Broker Jefferies, more positive on the shares, said the small but fast-growing Ingenuity has secured some ‘eye-catching’ contract wins and that the investment would lead to ‘a deepening commercial relationship’ with SoftBank that could pay dividends in the future alongside e-commerce growth and new acquisitions.
CITY HOTSHOT WHO SAW IT COMING
A razor-sharp City analyst is being credited with spotting in advance the incredible shares slide at The Hut Group.
Two weeks ago, Simon Bowler, research director at broker Numis, went against the tide of City opinion when he issued a report telling investors to sell the shares.
Scrutiny of THG’s much-hyped Ingenuity technology division and slowing growth at its beauty business had led Bowler to cut the value of the business. He said the tech division minnow’s path to growth from its small base of just £18million sales in the first-half was ‘less visible’ than that of rivals.
He warned it may be worth 15 per cent less than the £4.5billion suggested by an ‘option’ price deal that would allow SoftBank a stake.
His note also suggests the deal-hungry beauty division is slowing and its future payments to Ingenuity are unclear, possibly dragging on future profits.
Influential City firm The Analyst, run by Mark Hiley, is also understood to have circulated a critical note on THG last week. The Analyst declined to comment.
A source at one rival broker said Bowler, previously at Citi, has accurately forecast both lucrative and problematic share positions.
He currently has ‘buy’ ratings on M&S and Next after correctly predicting both would rise last summer. Their share prices have already doubled since his forecasts were published.