REG - Kelso Group Holdings - Investment in THG Plc Update

Kelso groupAnnouncement

13/07/2023 07:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230713:nRSM8594Fa&default-theme=true

RNS Number : 8594F  Kelso Group Holdings PLC  13 July 2023

 

Kelso Group Holdings Plc ("Kelso' or the "Company")

 

Investment in THG Plc ("THG") Update

 

 

Kelso, the main market listed investment company, updates its shareholders on
its investment in THG Plc ("THG"). As previously announced in its Trading
Update on 12 July 2023, Kelso confirmed its ownership of 8.0 million shares in
THG, by way of ordinary shares and CFDs.

 

Kelso is pleased with the significant progress made by THG during 2023,
including its recent positive trading statement, with management expecting H1
EBITDA to be approximately 41% up year on year. This progress has been helped
by the external tailwinds of the significant whey price reduction which should
help profitability particularly in H2. However, the significant non trading
internal progress achieved should not be underestimated; improved
communication to the stock market; improved corporate governance with new
NEDs, early release of the golden share and reiterated commitment to joining
the premium index which we hope will occur H1 2024.

 

The one-year anniversary of the announcement of the THG 'Separation' is later
this month. The Separation occurred almost two years after the IPO and
importantly allows each business division to be independently managed and
reported on. It also facilitates possible third-party investment into any of
the divisions and potentially for any of the divisions to be sold partially or
in full. Importantly, Separation therefore gives THG significant strategic
optionality, and we welcome management's openness and desire to explore these
opportunities.

 

Kelso continues to believe this approach encourages stock market analysts to
value THG on a sum of the parts basis, given the distinct nature of the
various divisions. It is pleasing to see this change gradually occurring in
the analyst community and we believe this will ultimately lead to the stock
market better appreciating the fundamental value of THG, shifting away from
pure e-commerce benchmark valuations. Liberum, the independent broker,
continues to re-emphasise its 225p target value, over two times the current
share price, but it is also encouraging to see other analysts increasingly
refer in their research to higher potential price targets centred around the
sum of the parts valuation.

 

In particular, we believe that THG's Nutrition division with its main brand of
MyProtein should be valued as a global consumer brand, given near $1bn sales,
double-digit EBITDA margins and its increased product innovation in the
current year. This division alone continues, in our view, to be worth more
than the market capitalisation of THG. Kelso's RNS on 21 April 2023(2)
highlighted this value and the names of some of the global brands that are
increasingly shifting the balance of their product portfolios away from sugar
and chocolate products to more healthy and nutritional ones. This is made
clear when the 13(1) global consumer product companies, with an average market
capitalisation of £85.3bn, that we believe could potentially have strategic
interest in this division, trade on an average EV/Sales of 4.4x. THG remains
valued on an EV/Sales of c.0.5x.

 

Centred around the potential value of MyProtein, Kelso has been pleased to see
two further industry developments in the last few weeks. First of all, on 5
July 2023, Mars Wrigley ("Mars") announced the acquisition of Kevin's Natural
Foods for $800m, a business founded in 2019. Kevin's Natural Foods reportedly
generated approximately $140m of revenue in 2022 up from approximately $100m
in 2021, which implies a 5.7x historical sales multiple. This sales multiple
is not dissimilar to other recent sales multiples on acquisitions in the
nutrition sector. Secondly, we note the announcement on 22 June 2023 by Tesco
reaffirming its commitment to support healthy affordable diets. Tesco
announced in this statement its target of boosting sales of healthy products
to 65% as a proportion of total sales by 2025. Kelso highlighted in its RNS on
21 April 2023(2) date about the global investment institutions demanding that
food brands declare what % of their product portfolio are 'healthy'. Kelso
believes that the combination of retailers such as Tesco targeting healthier
products coupled with institutional investors equally wanting to understand
the healthiness of the product portfolios of the global food brands better
should leave THG's leading nutrition brand MyProtein in a strategically
advantageous position as it further expands globally.

THG appears to be in a much steadier and improved position year on year. With
THG's net debt to EBITDA ratio now approaching 1.0x, Kelso would like to see
THG buying back some of its equity or debt demonstrating the improved
confidence that they have shown in recent announcements.

 

Kelso continues to encourage THG to deliver on a sum of the parts realisation
and is very pleased that the company are open to driving this change forward.
Kelso is looking forward to the interim results of THG in September with
hopefully some corporate strategy update which we hope will serve to further
explain and support why the recent Apollo bid was rejected.

 

(1)Nestle, Coca Cola, Pepsi, Mondelez, Mars*, Hershey, Ferrero*, General
Mills, Lotus Bakeries, Monster, Kraft Heinz, Keurig Dr Pepper,
Danone *Denotes private

(2)https://www.londonstockexchange.com/news-article/KLSO/update-on-thg-investment-and-placing/15925580
(https://www.londonstockexchange.com/news-article/KLSO/update-on-thg-investment-and-placing/15925580)

 

For further information please contact:

 Kelso Group Holdings plc                      +44 (0) 75 4033 3933
 John Goold, Chief Executive Officer

 Mark Kirkland, Chief Financial Officer

 Jamie Brooke, Chief Investment Officer

 Zeus (Broker)                                 +44 (0) 20 3829 5000
 Nick Cowles, Ed Beddows (Investment Banking)

 Ben Robertson (Corporate Broking)

 

About Kelso:

Kelso was established in November 2022 to identify, engage and unlock trapped
value in UK listed companies. Through active engagement and alignment with
other stakeholders, Kelso aims to effect change where existing shareholders
are often unable or unwilling to do so themselves. Kelso is run by John Goold
(CEO), Mark Kirkland (CFO and Strategy) and Jamie Brooke (CIO) each of which
have over 25 years of experience in the quoted and unquoted UK small and
mid-cap market.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  MSCGPUCGMUPWPGP