THG share price up over 7% on City A.M. purchase

THG has purchased financial freesheet CITY A.M. in a pre-pack deal. The paper will now sit alongside THG’s other businesses, which include Myprotein and Lookfantastic. THG’s share price has rallied this year as investors buy into its transformation strategy that has seen underperforming businesses sold off, with the latest two going for approximately £4m.

• The owner of Myprotein and Lookfantastic purchases City A.M. in pre-pack deal.
• THG’s share price up over 136% this year following strategy shake-up.
• Company sells two underperforming businesses for approximately £4m.

The Hut Group’s (THG) [THG.L] share price closed higher last week after investors gulped down news that the company best known for protein shakes had bought free daily newspaper City A.M. in a pre-pack deal.

The surprise move sees the financial freesheet join a business empire that includes Myprotein shakes and cosmetics site Lookfantastic. City A.M. had been on the verge of entering administration. THG will invest in boosting the 18-year old paper’s technological and newsroom resources, and expanding its lifestyle and sports content.

City A.M. has a daily print circulation of almost 70,000 and 2 million monthly unique visitors to its website. The deal will allow THG to tap into City A.M’s readership with its estate of products. “A perfect fit”, was how City A.M. co-founder Lawson Muncaster described the deal.

THG shares up on City A.M. deal

The acquisition seems to have gone down well with investors, with THG’s share price up over 7% last week, closing Friday 28 July at 103.95p.

“City A.M. is one of London’s leading media platforms and we will ensure this remains the case with full editorial independence. This deal helps us reach a huge new audience, complements our successful content creation studios and digital media expertise,” THG CEO Matthew Moulding said.

In a LinkedIn post, Moulding said that the one golden rule for the paper’s editorial content was to “where possible, be a cheerleader for both the UK and businesses alike, and don’t get dragged over to the dark side”. Moulding has previously been a critic of the UK’s financial press in the past.

What’s happening with THG’s share price?

Year-to-date THG’s share price has rallied over 136% as investor confidence returns to the stock. That rally has shown some legs with THG shares up 32% over the past month. While Friday’s close might be off the 800p levels seen in January 2021, it’s a long way above the 11 October 2022 year-low of 31.15p.

Boosting the stock has been positive statements from activist investor Kelso Group, which in April increased its holdings in the company. Kelso recently reiterated its support for THG’s decision to separate its key divisions last year and believes that Myprotein is an undervalued asset that alone could be worth more than the market capitalisation of THG.

Moulding’s decision to give up his ‘golden share’, which had allowed him to veto any hostile takeover bid, has also gone down well with shareholders.

THG sells non-core businesses

THG hasn’t just been buying businesses this month. In July, it also announced that it had sold two non-core businesses for £4m. Cycling equipment provider ProBikeKit went to Mike Ashley’s Frasers Group [FRAS.L], while its personalisation OnDemand business underwent a management buyout with additional funding from investment firm Gordon Brothers.

THG said that the sales will remove businesses that made a combined loss of £14.6m in 2022 on an EBITDA basis. Last year THG pre-tax losses widened to £591m from the £186.3m the previous year.

The sales are part of a company simplification programme announced in January. Next up could be the sale of THG’s 1 million+ square foot headquarters close to Manchester Airport. THG bought the space at Icon Business Park four years ago for an estimated £250m.

Where next for THG’s share price?

Running a print and online news operation is not an easy task and there is the risk that it will distract from the running of THG’s other operations.

After last year’s heavy losses, shareholders will want to see a focus on getting back to profitability. In a June trading update, THG said it expects adjusted EBITDA for the first half of the year to come in between £44m and £47m, up from £32.3m a year earlier, and continuing adjusted EBITDA of £47m to £50m.

THG’s share price has a 80.5p 12-month median price target, suggesting a 22.6% downside on Friday’s close.