REG - Kelso Group Holdings - Update on THG Investment and Placing

Kelso groupAnnouncement

21/04/2023 07:00

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RNS Number : 9829W  Kelso Group Holdings PLC  21 April 2023

21 April 2023

 

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

 

Update on THG Investment and Placing

 

Kelso today announces that it has acquired further interests in shares in THG
plc ("THG"), through a Contract for Difference ("CFD"), taking Kelso's total
economic interest in THG shares (held through a mix of ordinary shares and
CFDs) to 8.0 million shares.

 

One of the key drivers for Kelso's investment in THG, as announced on 31
January 2023 (the "January Announcement"), was around the significant
intrinsic value of the nutrition business (referred to going forward as
"MyProtein"), which in part, we referred to in the January Announcement is
caused 'by the shift in consumption away from chocolate and sugar to health
and nutrition'.

 

We note yesterday's public statement by the Healthy Markets Initiative, a
group of 26 global institutional investors with assets under management of
over $5.3 trillion as outlined by Alistair Gray's article in the Food and
Beverage section of the Financial Times and on the BBC website on 19 April
2023. These investors are engaging with the world's largest food manufacturers
to promote changes in their strategy away from an over-reliance on sales of
less healthy products. The Financial Times article refers to potential
'systemic risk' to companies that are over reliant on sales of these unhealthy
foods. This article encapsulates exactly what Kelso referred to as the
'chocolate and sugar problem' and the need for these companies to diversify
their revenues into healthier products for long term success. In our view,
this strategic shift is akin to the major oil companies diversifying into
renewable energy and highlights the huge relevance and underlying value of THG
Nutrition.

 

Kelso has identified 12 global food and beverage companies(1) that it believes
could be deemed overly focussed on sales of chocolate or high sugar content
products. The average market capitalisation of the 10 listed companies
identified is $96.1 billion with an average revenue of $30.5 billion, the
remaining 2 businesses being private. Kelso calculates that the average
enterprise value to sales of these companies is 4.3x. THG has announced this
week the sales of its nutrition business, including MyProtein, as being c$800m
for the year ended 31 December 2022.

 

Kelso identifies two listed pure play global health nutrition companies, being
Celsius Inc ("Celsius") and Bellring Brands Inc ("Bellring"). Celsius, with
sales of $654 million, trades on an EV/Sales of 10.8x and Bellring, with sales
of $1.4 billion, on 3.9x.

 

Matthew Moulding, the CEO and founder of THG, has consistently tried to
explain the true value of the nutritional business. In addition, the food and
beverage companies we refer to above have vast offline global distribution
networks that could significantly increase the offline sales of MyProtein. In
return, we strongly believe, that MyProtein's direct to consumer digital model
would be highly attractive to many of these companies.

 

Any forthcoming offers for THG as a whole must clearly reflect this underlying
value and in the event that an acceptable offer is not forthcoming then a
separation of MyProtein should be considered, alongside a potential
partnership and minority investment from companies such as those highlighted.
Kelso believes that THG's nutritional business is likely ultimately to end up
being owned by one of the large global food and beverage companies, all of
which have already begun investing in nutritional, wellness and healthier
assets to improve the mix of their sales between nutrition and chocolate or
sugar products. All those transactions again support Kelso's sum of the parts
view of THG.

 

Kelso will provide an update on its Proposed Placing, as announced on 30 March
2023, next week alongside the issue of its financial statements for the period
ended 31 December 2022. It is expected that current shareholders will
subscribe for the majority of the raise.

 

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

 

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 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 £3.0 million 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.

 

END

 

 

 

 

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