REG - Kelso Group Holdings - Investment in THG Plc

Kelso groupAnnouncement

31/01/2023 07:00

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RNS Number : 3309O  Kelso Group Holdings PLC  31 January 2023

31 January 2023

 

Kelso Group Holdings Plc ('Kelso')

 

Investment in THG Plc ('THG')

 

Kelso was established in 2022 to identify, engage and unlock trapped value in
the UK stock market. Kelso's strategy is to invest in situations where there
is an anomaly between the intrinsic value of a company and its stock market
valuation. Kelso will offer its assistance to companies to help unlock that
value. Kelso will, in particular, seek opportunities where it believes the
value of the sum of the parts of a business is significantly greater than its
current value.

 

Kelso is pleased to announce its first investment meeting its investment
criteria with the purchase of 5.0m shares in THG at an average price of 54.5p,
representing 0.4% of THG.

 

The Board of Kelso believes that THG is a hugely exciting but significantly
undervalued business. Matthew Moulding the THG founder and CEO has built a
business with true global scale in two global growth sectors of Nutrition and
Beauty employing around c.8,000 employees with 18 fulfilment centres shipping
to 195 destinations.

 

On 17 January 2023, THG announced record revenue for the year to December 2022
of £2.25bn, albeit with a reduced core adjusted EBITDA on a continuing basis
of £100m, following EBITDA of £161m in FY21 and £151m in FY20. However, we
believe this reduced EBITDA is temporary and will be enhanced with operational
improvements and not least from deflation in certain input prices, for example
in whey. We also regard THG's comment that Ingenuity is "in advanced
discussions to provide long-term software solutions for several significant
enterprise clients" as positive news.

 

Kelso believes that the THG Board's actions, through the new chairman Charles
Allen, Lord Allen of Kensington CBE, to improve governance and expand the
executive team will pay dividends in 2023. We think that the recent
appointment of Damian Saunders as CFO, previously a senior partner at
Deloitte, as announced on 24 January 2023, is positive, especially given his
knowledge of THG having been involved with the 'separation' project which
formally gave the three main divisions their own corporate independence.

 

Kelso believes that the separation provides THG with significant strategic
optionality. The potential to separate parts of the business could provide THG
shareholders with significant upside from the valuation of the business today.
Kelso believes that the current stock market value does not reflect the
underlying value of the sum of each of the main THG divisions.

 

In particular, Kelso believes that the Nutrition business, which incorporates
the MyProtein and MyVegan brands, could alone be worth in excess of the entire
current market capitalisation of THG. This is evidenced by the valuations of
deals in that particular sector in the last few years, caused in part by the
shift in consumption away from chocolate and sugar to health and nutrition, a
trend which we believe will continue.

 

For the reasons above, Kelso believes this is an exciting first investment for
its shareholders.

 

Background on THG

 

At the close of business on 30 January 2023, THG had a market capitalisation
of £710m. THG was listed on the London Stock Exchange in September 2020 with
a market capitalisation of £5.4bn, raising £888m of new equity for the
company at 500p and then a further $1.05bn at 596p in May 2021. Post IPO, THG
has reported acquisitions for a total consideration of c.£945m.

 

THG announced on 17 January 2023 record sales for the year ended 31 December
2022 of £2.25bn with the three principal divisions, being Beauty, Nutrition
and Ingenuity contributing sales of £2.1bn with core adjusted EBITDA of
£100m. Sales in the Beauty division were £1.2bn; the Nutrition division had
sales of £672m, including the MyProtein, MyVegan and MyVitamin brands; and
Ingenuity, THG's fulfilment business, had sales of £208m. Various of the
brands within the Beauty and Nutrition divisions are global digital leaders in
their own space, for example Lookfantastic.com is the world's leading online
specialty beauty retailer. Also stated in the announcement was year-end net
debt of c. £200m, reducing to c. £160m upon receipt of £40m of
proceeds from non-core freehold asset disposals in H1 2023.

 

Since the IPO, there has been significant investment in acquisitions of many
industry leading businesses. Following its IPO in September 2020, THG
purchased Perricone, the global beauty brand, for £51m. In February 2021, it
purchased Dermstore for £261m, the number 1 US online retailer of prestige
skin care. In December 2020, it purchased Claremont Ingredients and David
Berryman for a combined value of £69m. In May 2021, it purchased Brighter
Foods for £44m a best-in-class bar formulation and production company.

 

In June 2021, THG purchased Bentley Laboratories for £180m, a US prestige
beauty developer and manufacturer which worked with 70 global beauty brands.
In August 2021, it purchased Cult Beauty, a niche beauty portal, for £291m.

 

In June 2022, the board of THG said that having received non-binding takeover
approaches from numerous parties, that all of them were unacceptable as they
significantly undervalued the company. The only price stated in those
announcements referred to a non-binding offer of 170p.

 

Note: M&A transaction values sourced from THG annual reports

 

John Goold, CEO of Kelso commented:

"Matthew Moulding, a British entrepreneur, started THG from scratch in 2004,
which has grown to over £2.0bn of revenue, employing c.8,000 employees the
majority of which are in the UK. This transition from entrepreneurial start up
to a large listed corporate is never easy but we think THG is now putting in
all the building blocks to achieve the success it deserves."

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, Matt Hogg (Investment Banking)

 Ben Robertson (Corporate Broking)

 

About Kelso

Kelso was established in 2022 to identify, engage and unlock trapped value in
the UK stock market. Kelso's strategy is to invest in situations where there
is an anomaly between the intrinsic value and prospects of a company and its
stock market valuation. Kelso will, in particular, look for situations where
it believes the sum of the parts of a business is greater than the current
value. The company completed a fundraising of £3m in January 2023. Kelso
believes that the current market conditions are such that there are situations
where UK listed companies' valuations are not appropriately matched to their
underlying intrinsic value. There may be instances where Kelso itself could be
used as a vehicle by an undervalued company to spin off a subsidiary into its
own listing. Such a transaction would undoubtedly constitute a reverse
takeover for Kelso.

 

 

 

 

 

 

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