An activist shareholder at THG has urged the company’s board of directors to break it up into three distinct businesses.

Kelso Group Holdings Plc, made up of almost two dozen high net-worth figures and led by former Zeus Capital CEO John Goold – a current non-exec director at Boohoo Group Plc – said the failure to do so would leave it “susceptible to an opportunistic bid”.

THG floated on the London Stock Exchange in 2020 with a valuation of £5 billion but is worth just £1bn today. It runs a beauty goods business, one focused on nutrition and an eCommerce services platform named Ingenuity.

In the latest set of annual results, pre-tax losses at THG almost tripled in the year to 31st March 2023 to £550 million, while sales rose 2.7% to £2.2bn.

Kelso stated: “THG’s sum of the parts is worth significantly more than the company’s current market capitalisation, and [believes] 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.  

“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.”

In a tactical move, THG founder and CEO Matthew Moulding recently acquired a 3.2% stake in Kelso Group and is now the business’s third-largest shareholder.

Moulding has been forthright in his criticism of the LSE on LinkedIn in recent months, claiming that “it has become standard practice for hedge funds, media and bank analysts to build negative coverage against UK listed companies… betting that a share price will fall”.

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Kelso was set up to protect shareholder value in listed UK businesses.

“Over recent weeks, the market has seen a growing and concerning trend of high-quality smaller UK companies exiting the London Stock Exchange,” it stated. 

“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.”

Kelso has written to THG, urging it to demerge its businesses.

“We believe that the market would respond well to a formal confirmation of a demerger of THG,” said Goold. 

“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.”

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