Can the THG share price continue its recovery?

THG shares are up 121% in 2023, and 30% in the last month, as the stock climbs back towards its 52-week high of 118.10p. But the shares remain a long way from former highs. Recent share price catalysts include the ending of takeover talks with Apollo and activist investor Kelso Group, who believes THG shares are significantly undervalued.

• Shares up 30% in the last month and 121% year-to-date, but still down over two years.
• Activist investor Kelso endorses company’s strategy.
• Two loss-making businesses and Manchester HQ to be sold.

The THG [THG.L] share price appears to be in recovery mode, up 121.2% so far in 2023, and 30.2% in the last month alone, as the stock climbs back towards its 52-week high of 118.10p reached on 3 May.

While investors will cheer the upturn, THG shares remain a long way from the highs achieved following the ecommerce technology company’s IPO, when the stock soared to over 800p. THG shares are 83.43% lower across the last two years, after a series of setbacks, disappointing results and profit warnings hit the company, whose brands include LookFantastic and My Protein.

Recent share price catalysts include the ending of takeover talks with Apollo [APO], and increasingly positive statements from Kelso Group [KLSO.L]. The activist investor has built its stake in the tech retailer this year, and believes THG shares are significantly undervalued.

THG share price soars but remains off former highs

THG shares fell back under the 100p level on Friday 21 July, ending the week at 97.10p. But the strong run over the last couple of months has seen the stock jump 211.72% above the 11 October 2022 52-week low at 31.15p, with the shares 21.63% off the 52-week high of 3 May.

In what’s been a rollercoaster ride since the company’s IPO in September 2020, the shares still lie a considerable distance from the all-time peak of 837p hit in January 2021, when THG’s share price soared 67.40% over the 500p offer price, as investors piled into the freshly listed tech stock, formerly known as The Hut Group.

Activist investor Kelso reaffirms THG strategy

Kelso reiterated its support for THG’s strategy in its latest update to the stock exchange, focusing on THG’s decision to separate its key divisions last year. Kelso said the approach “encourages stock market analysts to value THG on a sum of the parts basis, given the distinct nature of the various divisions”, adding that the move should “ultimately lead to the stock market better appreciating the fundamental value of THG, shifting away from pure ecommerce benchmark valuations.”

Kelso has also identified My Protein as an undervalued asset, arguing it should be considered a global consumer brand with sales close to $1bn and impressive margins, saying, “this division alone continues, in our view to be worth more than the market capitalisation of THG.”

Kelso made an initial £2.7m investment in THG in January, increasing its stake in April, and currently holds around 8 million THG shares, about 0.6% of the company. Kelso CEO John Goold also now sits on THG’s board.

Moulding sells loss-making divisions; Manchester HQ next

THG revealed last Friday it has sold two loss-making businesses for £4m, as the company seeks to streamline the group and improve profitability following a strategic review announced in January. It has sold entertainment products division THG OnDemand to a new company, and cycling equipment retailer ProBikeKit to retailer Frasers Group [FRAS.L].

THG CEO Matthew Moulding is also set to sell THG’s more than one million square foot headquarters close to Manchester Airport, reported the Retail Gazette. The deal will see the five industrial units and offices sold to a company managed by real estate investor, ICG Longbow.

Moulding bought the space at Icon Business Park four years ago for an estimated £250m. According to BusinessLIVE, work has yet to get underway on THG's new HQ at Manchester Airport, which should have more office space to cater for in excess of 10,000 employees.

Apollo takeover bid talks over

THG’s board unanimously opted to end discussions about a takeover bid from private equity company Apollo in May, saying its offer under-valued the Manchester-based outfit. THG’s share price plunged 22.5% from 11 May’s open at 81.16p, to 12 May’s close at 62.90p, as investors reacted with disappointment at the parties’ inability to agree on a takeover deal.

AJ Bell’s investment director Russ Mould didn’t hold back, reported the Guardian, saying: “The misery around THG goes on … investors hoping a takeover would put both them and the company’s torrid existence as a public entity out of their misery will be disappointed.”

What’s next for the THG share price?

The shares have staged an about-turn since the takeover talks collapsed, and Kelso is optimistic the share price will continue to gain momentum, citing independent broker Liberum, who “continues to re-emphasise its 225p target value, over two times the current share price”. Kelso added: “it’s also encouraging to see other analysts increasingly refer in their research to higher potential price targets”.

Kelso upgraded the stock to a ‘buy’ recommendation in April, one of three such ratings from 10 analysts covering the company, according to the Financial TImes. The stock has a 12-month price target of 80.50p, which would see a 17.1% potential downside from Friday’s 97.10p close.