THG share price plummets on poor results
THG shares are down over 16% and at fresh all-time lows this morning after delivering a disappointing set of first half results this morning. Revenue grew slower than anticipated, earnings dropped far more than expected and it cut its outlook for the full year after issuing a profit warning.
Revenue rose 12.3% in the first six months of 2022 to hit a new all-time record of £1.08 billion, but this fell far short of the 16.5% topline growth forecast by analysts. Meanwhile, adjusted Ebitda plunged over 60% to £32.3 million, when analysts had pencilled-in £57.1 million.
The disappointing results were caused by the brakes being applied to growth as consumers become more cautious and tighten their purse strings in an uncertain environment. All its divisions grew slower than expected, especially its Ingenuity platform that grew at just half the rate that analysts had forecast amid lower average recurring revenue as demand for ecommerce softens. Meanwhile, profitability has weakened as it tries to keep prices low and absorbs cost increases amid rampant inflation.
THG profit warning pressures its prospects
The weak first half performance was coupled with a profit warning and a more cautious outlook.
THG was originally aiming to grow sales by 19% to 24% this year and said adjusted Ebitda would be broadly level with the £161.3 million delivered in 2021. Those goals have now both been scrapped as THG warned revenue will now grow by just 10% to 15% in 2022, while adjusted Ebitda will be in the range of £100 million to £130 million.
THG is confident it can maintain double-digit sales growth in the second half and said inflation is starting to ease. The second half will be better than the first, but the challenging outlook for the rest of 2022 means investors will have to wait longer for it to achieve its medium-term goals. It said that current forecasts ‘predict the outlook for consumers will remain challenging’ even as we enter 2023.
THG said it is still pursuing its ambition to get annual revenue growth up to 20% to 25% and achieve an adjusted Ebitda margin back toward 9% over the ‘medium-term’ (from just 3% in the first half), but this will not happen in 2023 considering THG said it will deliver ‘strong progression’ toward these goals next year.
It did, on a more positive note, reiterate its ambitions to stem the outflow of cash and for free cashflow to be broadly neutral in 2023 before turning positive in 2024. THG is typically cashflow generative in the second half of the year thanks to the seasonal peak trading, but this will not be able to counter the outflow seen in the first during 2022. Still, THG has cut its capital expenditure budget for next year and said it expects to end 2022 with around £500 million in cash, which should keep the ship steady until cashflow can sustain the business.
THG aims to improve governance
THG separately announced a shake-up to its board this morning as it strives to address concerns over the company’s corporate governance.
Gillian Kent, who has previously worked at Microsoft and real estate portal Propertyfinder, as well as Dean Moore, the previous CFO of embattled cinema chain Cineworld, have both appointed as non-executive directors. Meanwhile, senior independent director Zillah Byng-Thorne and non-executive Andreas Hansson have stepped down.
Chair Charles Allen said he ‘very much looks forward to working with them as we continue to strengthen our leadership team, improve governance and transparency and seek to enhance board composition by improving independence and diversity.’
‘The board recognises the ongoing importance of strong corporate governance to underpin and support the long-term prospects of the group and the appointment of these new independent non-executives reinforces our key commitment in this regard. Both bring extensive and relevant sector and plc board experience with them and have demonstrated strong track records in business growth; their insight will be invaluable as we continue to develop and refine the strategic drivers underpinning THG's future growth,’ he added.
Where next for the THG share price?
THG shares are down 16% in early trade today, pushing the stock to a fresh all-time low of 40.82p. The fact trading volumes have almost doubled whilst falling to fresh lows over the past two days suggest we could see the stock come under further pressure, although this is countered by the fact the RSI has now plunged deep into oversold territory.
We are now in unknown territory whilst the share price remains under pressure and finding fresh floors. Any recovery could be slow and in baby steps. It first needs to recapture 51.50p before looking to break back above the 60p threshold, although 70p should be treated as a more important upside target considering this has emerged as a level of both support and resistance on several occasions over the past six months.
The THG share price has collapsed 92% over the past year alone. Governance concerns, more sceptical reports from analysts, the decision by some major institutional investors to sell down their stakes, weaker investor confidence and a muddled investment case since announcing plans to spin-off the Beauty division so it can focus on Ingenuity have all contributed to the decline in value. Plus, the collapse of a deal with Japanese conglomerate Softbank, which was set to invest in Ingenuity before backing out earlier this year because of tougher macroeconomic conditions, also added to its woes.
That means THG boasts a valuation of just £505 million following the heavy selloff today, which will be hard for investors to swallow considering there were multiple parties interested in buying the business earlier this year for almost four times that figure, with management having turned down an unsolicited offer in May that valued the business at around £2.1 billion
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