Ecommerce group THG said it would appoint a non-executive chair as part of its efforts to improve transparency but the announcement failed to arrest the downward slide in its share price, despite unveiling more details about the performance of its Ingenuity technology division.
The Manchester-based group also said Andreas Hansson, a managing director at SoftBank, would join the board. The Japanese group owns about 8 per cent of THG and has an option to buy a 20 per cent stake in Ingenuity.
News of the search of a non-executive chair and Hansson’s appointment, which was widely expected, failed to assuage investors’ nerves. Shares in the company opened slightly higher on Tuesday but by lunchtime were down almost 13 per cent at 267p.
After a high-profile flotation at 500p a share in September 2020 and a post-IPO rally that took the stock to almost 800p, THG has come under pressure in recent months.
Investors have grown more concerned about governance issues and struggled to reconcile the £4.5bn valuation implied for Ingenuity by the SoftBank deal, which was announced in May this year, with its relatively small annual revenues and unclear profitability.
With THG’s total market value currently more than £1bn below that implied valuation of Ingenuity alone, they are also worried that SoftBank may decide against exercising its option, depriving the ecommerce company of a potential capital infusion. THG said at a recent capital markets day that it expected the option would be exercised in the first half of next year.
The board changes were announced alongside a third-quarter trading update, in which Ingenuity reported revenue of £51m, up 44 per cent from last year.
But that is a third of the sales generated by THG’s nutrition business, which markets fitness products such as Myprotein, and a fifth of the revenue from the beauty business, which includes brands such as Lookfantastic and Espa.
THG provided more detail about so-called commerce revenue within Ingenuity, which represents sales of end-to-end ecommerce packages rather than lower-margin individual services such as website hosting or translation. Revenue from these integrated packages is regarded as a key attraction for SoftBank.
Commerce revenue accounted for £30m of Ingenuity’s £137m total so far this year but it is growing rapidly, up 131 per cent in the third quarter. THG said that by the end of 2022 “run rate” commerce revenue — comprising annualised recurring sales plus all one-off revenue in the preceding year — would reach £112m, higher than previously expected.
On the call with investors, group commercial director Steven Whitehead said this projection did not include any new contract wins or changes in the group’s pricing structure.
THG said Ingenuity Commerce could achieve £270m of run-rate revenue by the end of 2023, based on new client business projections plus amounts charged to the group’s other divisions for services provided by Ingenuity.
The company used 4 per cent of gross sales from its other ecommerce divisions as an illustration of what these intercompany charges could yield for Ingenuity. No profits for Ingenuity have ever been disclosed.
THG co-founder and chief executive Matt Moulding, who is at present also executive chair, said the appointment of an independent non-executive chair was part of the process of moving from the standard to the premium segment of the London Stock Exchange’s main market. Executive search group Russell Reynolds has been engaged to help find a candidate.
THG’s overall revenue in the three months to September was up 38 per cent year on year at £508m. The group said it was making no changes to full-year forecasts at constant exchange rates.
But analysts warned that currency movements are putting pressure on margins.
Catherine O’Neill, at joint house broker Citi, said these headwinds “could lead to a high single-digit percentage cut to consensus adjusted earnings [before interest, tax, depreciation and amortisation]” in the current year.
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2021-10-26 07:45:22Z
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