The value of the e-commerce firm’s ‘end-to-end technology solutions’ doesn’t seem clear – no wonder investors went cold
For all the excitable claims by Matt Moulding, founder, chairman and chief executive of THG, that the e-commerce retailer was a victim last year of a vicious “short attack” from hedge funds, there was a boring explanation for the big tumble in the share price.
The stock market, in its collective wisdom, was already in the process last autumn of deciding that the e-commerce and new-tech brigade – think Asos, Boohoo, Darktrace and others – might be a tad overvalued. The reappraisal wasn’t confined to the UK; it was happening in the US too.
And THG, or The Hut Group as it was, gave investors extra reasons to be cautious because its communication around its Ingenuity division, the unit that provides “end-to-end technology solutions” for other people’s brands, was cack-handed. Put simply, investors struggled to see what was revolutionary about a marketing, logistics and distribution set-up.
Given that Ingenuity, according to the market’s previous bullish thesis, accounted for about half of THG’s value despite being the divisional tiddler, it was hardly surprising that outsiders had a rethink. You don’t need a conspiracy theory to explain the shares’ descent from 600p from 200p-ish.
They now stand at 168p, down 10% on the day, after a trading update that said operating profit margins in 2021 would be slightly below City forecasts. Conventional factors, including foreign exchange rates and commodity prices, were to blame, but it all adds to the impression that THG inhabits the same universe as the rest of the corporate world and should probably be valued as such.
THG’s Beauty businesses, centred on the Lookfantastic brand and with revenues of £1.1bn in 2021, are clearly a substantial operation. So, too, the shake and protein division called Nutrition (£659m of revenues). But Ingenuity, with revenues of £194m remains a mystery. Yes, it’s growing rapidly, but until THG provides a breakdown of divisional profits, any valuation is vague.
Moulding, wisely, didn’t treat us to another airing of his views on short-selling. Best to keep things that way: if there is hidden value within THG, the stock market is perfectly capable of finding it.
Debt threat to Unilever’s ambitions
On day two of the great GSK adventure, Unilever’s shares fell another 4%. One worry is that the company, led by chief executive Alan Jope, will end up overpaying for GlaxoSmithKline’s consumer products division. Another is that it will walk away and overpay for something else. Jope, after all, was clear on Monday that, whatever happens, Unilever’s strategy is to expand “materially” in the territory of “health, beauty and hygiene”.
Investors’ nerves won’t be helped by credit rating agency Fitch’s contribution. A purchase of the GSK business, “or possibly any other large target”, would raise debt levels to the point where the current A rating on Unilever’s debt is threatened, it said.
Unilever has a view on the debt point, of course: it would sell some or all of its food business, which is stuffed with excellent brands such as Ben & Jerry’s and Hellmann’s. It has no intention of running with sky-high borrowings for long.
But there is an issue of time and sequencing here. If the food business is worth roughly £50bn – the same as the rejected offer for the GSK unit – how quickly could that sum be turned into cash? A single buyer looks unlikely, which would imply a series of sales.
As it happens, Unilever sold at decent prices in the recent past when disposing of its spreads business and then the PG Tips tea operation, but neither sale happened quickly. Targeting the GSK unit is entirely reasonable, as argued here on Monday: the fit is good. But the journey to a reinvented Unilever is starting to look extremely complicated.
Only radical in the US
“Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not ‘woke’. It is capitalism, driven by mutually beneficial relationships,” writes Larry Fink, big boss of the $10tn asset manager BlackRock, in his annual “Dear CEO” letter.
There’s nothing particularly new or groundbreaking in his view. Fink was late – disgracefully so, many would say – to embrace the idea that long-term returns require a long-term perspective, and that profit-seeking companies should operate with a sense of duty to wider society and the planet. But he’s been arguing along those lines for a few years now.
So why does he feel the need to reject the charge of being woke? Only because he’s getting heat from US conservatives. In the UK – and, indeed, in the mainstream fund management in the rest of Europe – Fink’s version of stakeholder capitalism would be seen as unthreatening and middle-of-the-road. Over here, almost nobody is calling him radical or woke.