Falling out of fashion
Sub-par growth and a beauty division spin-off sends The Hut Group’s shares down 40pc in a month
THE bubble seems to have burst for former stock market darling The Hut Group with the company’s shares sinking for nearly a month.
Over the past four weeks the hitech fashion firm has lost nearly 40pc of its value following another fall of almost 5pc yesterday.
It marks a uncomfortable downturn in fortunes for chairman and chief executive Matt Moulding after THG floated last September amid much fanfare and a pandemic-fuelled online boom.
The sell-off was triggered early last month by murmurings around the market that Moulding wanted to split the group. On September 16 that was confirmed.
At the company’s half-year results, THG put out under-par numbers and said it would list its beauty division separately in 2022, while also pursuing stock market listings for its other nutrition and technology businesses.
One analyst said: ‘I was gobsmacked. The growth numbers were weaker than expected and here was Moulding essentially telling us that the band was breaking up. There was no thorough explanation for the decision and no breakdown for what the individual businesses could be worth. THG is shaping up to be a very different business to the one that listed a year ago.’
Moulding has defended his stance, stating that he believes the market has undervalued all three of these businesses, adding that they would be better off on their own.
But others disagree, arguing that there has been no pressure from big shareholders for him to make this move.
If anything, the call may have alienated heavyweight backers, including Goldman Sachs and The Capital Group, who soon after the results sold large chunks of their stakes.
Analysts have since crunched the numbers and believe THG Beauty, which includes brands such as Espa and Lookfantastic, could float at a value of £4bn.
No value has been assigned to THG Nutrition, although that could also be in the billions.
Analysts at Barclays cautioned that ‘valuing the businesses looks a bit challenging without disclosure of standalone margins’.
The first analyst added: ‘To be honest, it is back-of-a-fagpacket stuff at the moment. There simply isn’t enough information to know exactly what the different parts are worth.’
Moulding has in the past defied the doubters and his sometimes unconventional approach has paid off handsomely so far.
But some investors are unsure about THG plans to spin off its Ingenuity division, a tech business that helps other brands to sell online. Ingenuity accounts for just 9pc of group sales but it has established blue-chip clients, including Toblerone and Coca-Cola. Rumours about the future of the business started in May when THG struck a complex joint venture deal that gave Softbank the option to acquire a 19.9pc stake in Ingenuity, valuing the technology arm alone at £4.2bn.
Moulding, at the time of the half-year results, said: ‘From the moment we announced the Softbank deal it was a matter of when, not if we would do this [beauty] spin-off.’
All eyes now switch to Tuesday next week when a capital markets day hosted by Moulding will try to allay investor fears about the future of the company.
It cannot come fast enough for Moulding who needs to stem the share price slump.
In truth, question marks have long hung over THG and 49year-old Moulding.
He is a genuine self-made entrepreneur and generous charity donor who has risen from a working-class background. But there are governance issues that have still not been resolved.
He has been criticised for holding both the executive chairman and chief executive roles, along with a ‘golden share’ that allows him to block hostile takeover attempts for three years.
At the time of the float THG also sold off many of its property assets to Moulding, leaving the company to pay its founder £19m in rent annually.
The company has still not disclosed what the property portfolio was worth, and all investors know is that THG is renting from him 15 warehouses and offices, which include giant facilities in Warrington in Cheshire and another near Wroclaw in Poland, as well as a string of office blocks in Northwich, also in Cheshire.
Neil Wilson, an analyst at Markets, said: ‘I think we all got a little bit carried away with Moulding. The City should have been much more sober in its dealings with him.’
Moulding has had an impressive rise from modest beginnings to success in the Square Mile. Now he is facing one of his biggest challenges to win back the favour he worked so hard to gain.