Key points:
- THG has received “numerous” takeover offers recently
- They’ve all been rejected as they’re “unacceptable”
- Hut Group revenue is up to £2.1 billion from £1.6bn
- THG Denies Supply Problems – Why Wouldn’t They?
The Hut Group (LON: THG) shares are up 8% this morning as the group reports preliminary results and a trading update. Revenue was up to £2.1 billion from the previous year’s £1.6bn. Adjusted EBITDA is up to £161 million but then what matters is how that’s been adjusted – something we’ll find out with the full results in due time.
THG has been having problems, as we’ve noted before. The biggest problem for The Hut Group shares has really been that The City doesn’t think that Matt Moulding is really suited to being the chairman of a public company. Quite possibly an excellent entrepreneur and all that. But the job of a chairman is to soft soap investors, and that’s just not quite the character that’s there. Perhaps that’s not as it should be but there’s definitely a certain feeling along those lines.
It’s also true that there’s that slightly odd deal with Softbank still lurking in the background. The transfer of properties to Moulding just before flotation. As the company says, entirely reasonable and at full market value and yet, but, and all that.
An entirely reasonable attempt at valuation would be that whatever the success or not of the actual business, there’s a discount to true value as a result of those opinions. Or, equally valid, that those issues validate the current valuation.
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The trading update also tells us that further growth in revenue is expected for FY 2022, of 22% to 25%.
So, how are we to value this? There’s clearly a growth story inside THG, and equally, the current share price doesn’t seem to reflect that. Perhaps those perceptions over management style matter that much, perhaps they don’t.
At which point we’ve an interesting indication. The announcement includes the statement that the company has “ received indicative proposals from numerous parties in recent weeks”. That is, there are a number of people out there who think that the whole is of greater value than the current market capitalization. Or, to be more specific here, the parts are worth more than the whole. Strip THG of that problematic management – perhaps – or remove it from the public markets so as to concentrate purely upon the growth story and cashflow and it’s worth more than the current market cap.
That is a certain validation of the bull story here. It doesn’t solve whether the discount to that perceived value is going to close, but it does tell us that at least some groups think it undervalued at present.
THG has, of course, insisted that it’s not going to sell out for such paltry sums and is going to continue to grow the group.
The big question therefore becomes, well, can the growth continue to as to narrow the gap between actual and perceived valuations? Or, as we could also put it, is management going to prove that it can do it despite those current worries?