REG - Kelso Group Holdings - Update on THG Investment

Kelso groupAnnouncement

07/12/2023 07:15

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RNS Number : 0135W  Kelso Group Holdings PLC  07 December 2023

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

Update on THG Investment

 

Kelso, the main market listed investment company and an investor in THG Plc
("THG"), today released the following statement.

Over recent weeks, the market has seen a growing and concerning trend of
high-quality smaller UK companies exiting the London Stock Exchange ("LSE").
As such, more than ever Kelso urges boards and management teams to do
everything they can to recognise and address vulnerabilities, and to maximise
shareholder value.

On 30 October 2023, Kelso wrote to the Board of Directors at THG outlining its
conviction in the substantial value creation opportunity at the company. Kelso
firmly believes that THG's sum of the parts is worth significantly more than
the Company's current market capitalisation, and specifically that a demerger
announcement is the most compelling route to resolving the inherent disparity
between THG's share price and its fundamental fair value.  As Kelso has
stated previously, many of the larger global peers for THG's Nutrition
business trade on over 3-7x sales valuation multiples, while several of the
larger global Beauty brands trade on 3-5x sales. By comparison, THG trades on
around 0.5x sales. Kelso believes that the UK stock market will not ascribe a
sum of the parts valuation to THG, until the company publicly confirms its
intention to demerge its businesses. Such a demerger would allow each part of
the business better access to capital to deliver further growth and build upon
their market leading positions. There are several good examples of such
demerger confirmations on the LSE, including Whitbread's demerger of Costa
Coffee in April 2018 and GSK's Consumer Healthcare business in July 2021.
Kelso remains agnostic as to how THG chooses to prosecute the demerger
strategy.

John Goold, CEO of Kelso commented:

"We believe that the market would respond well to a formal confirmation of a
demerger of THG.  Whilst there are a multitude of reasons why the valuation
of many smaller companies remains at very low levels, companies need to ensure
that they have clear strategies in place to maximise shareholder value and to
avoid unwanted predatory interest at the wrong levels. We hope that THG adopts
our beliefs and announces a strategy for the demerger of its three stand-out
global businesses without further delay".

 

Letter to THG plc

30 October 2023

Dear Board of Directors of THG Plc ("THG")

I write to you today as CEO of Kelso Group Holdings Plc to request that you
work actively and rapidly towards addressing the inherent disparity between
THG's share price and true value. Specifically, we request you make an
announcement, as detailed below, and conduct a shareholder review. I assume
you feel the same frustration as shareholders and that you are keen to solve
this issue rapidly. Kelso remains a supportive but increasingly frustrated
shareholder.

Kelso continues to believe strongly that the three distinct businesses within
THG are worth considerably more, as separate businesses, than the current
market capitalisation of THG. Liberum continues to highlight this disparity in
their research.  Some of the world's largest companies operate in the beauty
and F&B sectors and typically, due to the quality of their business, brand
value and focus, trade on relatively high multiples. The stock market does not
value diversified conglomerates, which THG is deemed to be. We are not aware
of any global companies that operate in both the beauty and F&B sectors.
Many of these companies have historically been extremely acquisitive and in
particular F&B companies are growing their presence in nutritional and
wellness.

Kelso believes that the stock market will not ascribe a sum of the parts
valuation to THG until the board confirms, by way of an RNS announcement, that
its stated intention is to demerge the three divisions. Demerging the
businesses could be done via full, majority or minority disposals of each
division, most likely sequentially (we refer to any of these options as the
"demerger"). We do not propose to suggest the order of events, merely that it
is made clear to shareholders that all options are being considered.  Such an
announcement would, in our view, help to close the valuation gap and so
enhance the ability to achieve the true value in any of the demerger
options.  Our confidence in this approach was recently enhanced by the
positive share price move resulting from the CEO Matthew Moulding's strategic
optionality comments in the Q&A part of the Q3 trading statement.
However, we believe comments alone do not go far enough, and that the market
wants to hear formal confirmation of, and articulation of possibilities
regarding the company's intention to demerge.  THG's real strategic
optionality is enhanced as the share price increases.

Furthermore, whilst the share price remains low, THG is susceptible to an
opportunistic bid; this is a real risk without a supportive shareholder
base.  Another benefit is that such a statement will significantly reduce
your share price volatility making THG a more attractive investment for
traditional long only funds and stop hedge funds profiting from and driving
the current volatility.

Liberum's price target is 225p per share but only when a sum of the parts
valuation becomes relevant.  We think that more analysts would consider
increasing their target prices if a formal demerger intention announcement was
made. We also believe that such a demerger would be highly advantageous to the
valuation of Ingenuity in turning its internal revenues to external ones,
enhancing its ability to win third party contracts.

In summary, we believe it would be extremely helpful to THG's valuation if it
publicly included the following on an RNS announcement:

1.             The board's intention is to demerge the businesses
in the medium term.

2.             The demerger could be by way of separate listings
with THG retaining majority or minority ongoing control, or outright disposals
potentially with THG retaining an interest.

3.             The board is open to strategic partnerships as part
of this strategy.

We acknowledge fully that Kelso is a small shareholder, but we believe that
many other shareholders, both small and large, share our view, having become
increasingly frustrated and impatient. We urge you to engage an independent
third party now to canvas shareholders for their views, so you can understand
which actions your shareholders wish their board to act on.  We believe a
demerger announcement will be one of their principal requirements.

Yours sincerely

John Goold, CEO

 

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)

 

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