REG - Kelso Group Holdings - AGM Trading Update

Kelso groupAnnouncement

25/06/2025 07:02

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RNS Number : 2636O  Kelso Group Holdings PLC  25 June 2025

 

25 June 2025

Kelso Group Holdings Plc

("Kelso" or the "Company")

AGM Trading Update

Kelso, the main market listed acquisition vehicle focused on value creation at
the smaller end of the UK stock market, makes the following update ahead of
the Company's Annual General Meeting.

Highlights:

·    Since its last update on 23 April 2025, Kelso has seen an increase in
the value of all five of its investments, with three delivering significant
gains of c.20%.

o  The Works.co.uk plc ("The Works") announced a positive trading update, on
22 May 2025, upgrading its EBITDA guidance for the period. As a result, the
share price has since risen 185.0%, from 20.7p to 59.0p.

o  Angling Direct plc ("Angling Direct") reported results slightly ahead of
expectations on 13 May 2025, lifting its share price by 34.3%, from 35.0p to
47.0p.

o  NCC Group plc ("NCC") announced alongside its results on 19 June 2025,
that it was exploring strategic options for its Escode division, including a
potential sale and was in discussions with several interested parties. Since
the announcement, its share price has increased by 4.1%, from 136.4p to
142.0p.

o  Selkirk Group plc ("Selkirk"), the AIM-listed cash shell continues to make
good progress in line with its stated strategy, with the share price rising
19.7%, from 2.4p to 2.9p.

·    We continue to believe that the UK stock market remains fundamentally
undervalued, with UK small-caps presenting a potential generational
opportunity for value creation.

·    The Board remains confident in Kelso's outlook, underpinned by early
signs of a sustained recovery in UK small-cap segment.

Investment Strategy and Portfolio Update

Kelso's strategy remains the same, to identify, engage, and unlock trapped
value in the UK stock market through identifying fundamental value
dislocations in small but established UK-listed businesses. Our team continues
to constructively and actively engage with the management teams of its
portfolio companies, focusing on areas such as strategic direction, capital
allocation, and investor communications to catalyse change and unlock
shareholder value.

Kelso's board has acquired significant market experience over several decades
of working with UK smaller companies, alongside an extensive and valuable
network, both are key contributing factors to delivering this strategy and
maximising value for all shareholders. As conditions in the UK small-cap
market improve, Kelso continues to innovate and adapt its approach to drive
value added outcomes.

Since the Company's last results, Board ownership has increased to 22%, with
directors having participated in all three funding rounds, at 2.0p, 2.5p, and
3.0p respectively, raising a total of c.£7.9 million in aggregate since
Kelso's inception in January 2023.

Following the last portfolio update on 23 April 2025, and after active
engagement with the management teams of its five investment companies, Kelso
has seen valuation increases across its portfolio, including three significant
moves at c.20% in the past six weeks alone:

·    The Works: +185.0%

·    Angling Direct: +34.3%

·    Selkirk: +19.7%

In our view, each of these investments have considerable substantial further
value uplift potential.

As at today's date, The Works has become Kelso's largest holding at 25.8%,
with Selkirk at 23.6%, NCC at 21.7%, THG at 16.6% and Angling Direct at 12.3%.

Kelso is at an advanced stage in analysing future investment opportunities,
each expected to meet or exceed its minimum return threshold of over 25% per
annum. The Company currently holds five investments and anticipates expanding
its number of holdings over the next period.

The Works

The Works is a UK value retailer with 500 stores and annual revenue of c.£280
million, specialising in creative toys, crafts, books and gifts. In an
increasingly digital world, The Works offers products that enable simple,
screen-free creativity and play.

The Works floated on the London Stock Exchange in July 2018 at 160p per share,
with 62.5m shares in issue and a market capitalisation of £100.0m. In the
year period after following IPO, The Works generated revenue of £217.0m and a
£13.8 million EBITDA. Today The Works has a market capitalisation of £36.9
million, with the FY25 results being £277.0 million revenue and £9.5 million
EBITDA (non-IFRS 16 basis). Based on house broker's 1  forecasts, The Works is
expected to achieve revenue of £287 million and EBITDA of £11 million in
FY26.

We were pleased with The Works results announcement and trading update
provided on 22 May 2025, in which the Board upgraded its EBITDA guidance from
£8.5 million to £9.5 million to the end of April 2025, implying year-on-year
EBITDA growth of almost 60%. The announcement went on to highlight this
momentum is to continue into FY26 results, with an upgrade so early in the new
financial year, this supports our view that the business is in good shape.
The share price has risen 185.0% from 20.7p to 59.0p since Kelso's April
update, with a market cap of £36.6 million and net cash at the year-end of
£4.0 million. Based on current market data, The Works trades on a c.3x
EV/EBITDA multiple (non-IFRS basis) for this financial year. We believe that
this initial upgrade and share price movement is the start of a sustained
share price recovery.

Kelso owns 4.0 million shares in The Works (6.2% of the ISC) and continues to
believe the share price does not reflect the fundamental fair value of the
business. John Goold and Mark Kirkland became Non-Executive Directors from 14
February 2024 until 1 October 2024, stepping down following the appointment of
Steve Bellamy as the Chairman on 27 June 2024 and before the appointment of
Simon Hathway on 1 November 2024.

 1  Singer Capital Markets

Angling Direct

Angling Direct is the UK's leading fishing and angling retailer, with 55
stores and annual revenue of c.£85 million. We are not aware of any other
dedicated fishing group in the UK with more than five stores, thus giving
Angling Direct significant economies of scale advantage in one of the UK's
largest participation sports.

In recent years, Angling Direct established a successful YouTube channel to
support its business, with 400,000 members part of its fishing club. Angling
Direct expanded its presence into Holland 12 months ago with its first
physical store in the region, which remains loss-making and is currently
depressing the Group's overall profitability.

Angling Direct floated on the London Stock Exchange in July 2017 at 64.0p per
share, with 15 stores and £21.0 million in revenue. Since then, the number of
stores, revenue and EBITDA have all nearly quadrupled, yet the share price
remains at 26.6% below its IPO price.

We were pleased with Angling Direct's year-end results released on 13 May
2025, which were slightly ahead of expectations, with net cash of £12.1
million. In particular, an impressive 17.1% reported like-for-like revenue
growth for Q1. The share price rallied 34.3%, from 35p to 47.0p since Kelso's
April results, resulting in a market capitalisation today of £34.7 million.

Based on current market data, Angling Direct trades on a historic EV/EBITDA
multiple of 5.6x, however adjusting for the losses in its early-stage European
business (only 5% of total revenue), this multiple reduces to 5.1x. We believe
Angling Direct remains significantly undervalued, with Kelso owning 2.4
million shares (3.6% of ISC).

NCC

NCC operates two divisions: Global Cyber Security, in which the division
generated revenue last year of £263.2 million and an EBITDA of £26.1
million, and Escode, its marketing-leading software escrow unit, that achieved
revenue of £66.0 million and EBITDA of £28.4 million. Recent well documented
cyber-attacks in the UK have highlighted the importance of cyber protection, a
key growth driver for the sector, which we expect to continue to grow at a
high single digit percentage growth rate annually. In our view, Escode has one
of the highest quality earnings and cashflows in the UK stock market, with
nearly c.20 years of consistent revenue and profit growth.

Kelso owns 1.4 million shares in NCC (0.4% of ISC) and firmly believes that
combined value of the two divisions materially exceeds its current market
capitalisation. On 19 June 2025 NCC confirmed it is in discussions with
several interested parties regarding a potential sale of its Escode division.
Kelso believes that if such a disposal was achieved, it would be materially
enhancing to the NCC share price.

THG plc ("THG")

Post the demerger of Ingenuity, THG now comprises of two principal divisions.
The first being Beauty, where it owns the global beauty portals of
Lookfantastic, Cult Beauty and Dermstore, alongside several beauty brands such
as Espa, Perricone and Biossance. Revenue of the Beauty division to 31
December 2024 was c.£1.1 billion. The second division is Nutrition, where THG
owns the MyProtein, MyVitamin and MyVegan brands. Revenue for the Nutrition
division was c.£580.0 million to 31 December 2024.

It is Kelso's strong belief that these two divisions are worth significantly
more than THG's current market capitalisation of £391.1 million. We are
particularly encouraged by MyProtein's recent shift into offline retail and
its product extension into MyProtein meals and snacks, including a new
partnership with Muller. We believe that the market underappreciates this
distribution-led growth potential of this offline move nor the scale of
distribution, with products now sold in all of the UK's leading supermarkets
and several large supermarket chains in Europe and America.

On 23 April 2025, the THG Board confirmed that it had received a proposal from
Selkirk to acquire MyProtein, valuing the business at between £400 million
and £600 million. The Board of THG rejected this proposal, citing a
fundamental undervaluation of MyProtein. Kelso owns 5.4 million shares in THG
(0.4% of ISC).

Selkirk

Selkirk, an AIM-listed cash shell co-founded by Kelso in partnership with
Belerion Capital, floated in November 2024, targeting a high-growth
acquisition in the consumer sector.  Kelso is the largest shareholder of
Selkirk owning 75.4 million shares (18% of ISC). As per Selkirk's latest
update, the Board continues to actively pursue its current pipeline in line
with its stated investment strategy. It is well-capitalised with c.£7.0
million of net cash as at 31 December 2024, and is supported by a high-quality
shareholder register including several successful entrepreneurs.

Outlook

The Board of Kelso believes there is significant latent value across each of
its current five current investments.

Several new investment opportunities are at an advanced stage of diligence,
each of which we believe could exceed our minimum return threshold of 25% per
annum. Kelso continues to explore new potential sectors for its next cash
shell as we envisage to continue to with work with industry partners following
the successful model used with Belerion Capital on Selkirk within the consumer
sector.

During 2025, Kelso plans to expand its advisory board, which is currently
chaired by Oliver Hemsley and whose support we greatly appreciate.

Kelso is currently backed by over 50 business contacts of the Board from the
UK small-cap world and is grateful to all our shareholders for their patient
support as we build Kelso into a differentiated value creating investor. The
recovery in UK small caps is beginning to take shape, evidenced by increasing
retail investor activity, inflows into small-cap funds, and broader market
performance.

 

ENDS

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
                                                               +44 (0) 20 3829 5000

 Zeus (Broker)
 Nick Cowles, Louisa Waddell, John Moran (Investment Banking)

 Ben Robertson (Corporate Broking)
                                                               +44 (0) 20 3757 4980

 Camarco

 Billy Clegg, Tom Huddart, Letaba Rimell

 

About Kelso

Kelso was established in November 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.

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