THG PLC (LON: THG) shares dropped another 9.6% yesterday as the company released the Q4 trading update. Expectations are of continued growth in sales and revenues. The growth numbers are, objectively, rather good in fact. So too were the growth numbers for Q4. So, what’s the problem at THG then? Why, if The Hut Group is performing well, why are THG shares not also performing well?
One answer for the sinking THG share price is simply that all the previous assumptions were for more and faster growth than this. 25 and 27% growth is the sort of growth rate that any large company (and THG is a large company, predicted revenues are in the £2.2 billion range) would give eye teeth for but if the consensus expectation were for 30% then that’s a failure.
THG here being a good reminder of that trading maxim to buy the rumour and sell the fact. Or, unpacking that, it’s expectations that matter. If expectations were higher than the arriving reality then a share price will fall – as has just happened.
This though isn’t the real problem at THG. Rather, it’s not obvious that Matt Moulding, the charismatic founder, has actually grasped this job of his of running a stock market quoted company. The business performance isn’t bad. But the management of the City and investors is terrible.
As we noted back here about THG, running around shouting about the evils of short sellers isn’t the way to do it. Short sellers are a fact of life and they’re not, in fact, evil conspirators bent on destroying a company. Especially since THG doesn’t need any more outside capital so the THG share price doesn’t impact the actual running of the company.
Moulding’s just not got the confidence of the major investors in The City. That’s actually what the problem is. Take, for example, these latest results. Of course, no one is ever supposed to say “Ha! Your estimates of 30% are wrong!” but a wise corporate chairman manages down expectations a little. So that the actual news, when it arrives, is in line with those general expectations. As these things go surprises on the upside are fine, on the downside not so much.
This leads to assumptions about what might put this right. One is the rumour that Moulding might take THG private again. This would have to be at a premium to the current price but probably not to the 500p flotation price. That would cause shouting given how recent that flotation was but could be done.
The other would be for Moulding to grasp that while he may be able to run a business he seems not cut out to run a listing. Which would mean appointing a City veteran as Chairman. That would likely also boost that THG share price.
In the absence of either of these moves, THG being taken private, or THG appointing an independent and heavyweight chairman, it’s difficult to see what will boost the THG share price in this short term. It’ll have to be a long, hard, haul of better results instead.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.