Shares in Manchester-based online retailer THG, formerly known as The Hut Group, have fallen more than 80% in the last 12 months amid investor concerns over the company’s structure and governance. However, last month the firm appointed former ITV chief executive Charles Allen to lead its board and signalled that further changes could be in the pipeline. The market reacted favourably. Since dropping to a record low of 70.49p during intraday trading on 7 March, the shares are up by about a third. Is this a temporary bounce or can Allen help restore investor confidence over the long term?
The decline of a tech darling – but can it bounce back?
THG – which sells beauty and protein products online, and also provides technology to companies including Homebase and Unilever – was once a UK tech unicorn: a privately held startup valued at more than $1bn. When the company went public on 16 September 2020, strong investor demand inflated the shares to 658p, 32% above the initial 500p listing price, valuing the company at £5.9bn.
The IPO was one of the largest in the London market’s recent history, identifying THG as a British success story. Investors bought into the narrative that the company’s technology would help brands sell direct to consumers, pushing the shares up above 800p in January last year. Then came the backlash.
The decline was gradual at first. As recently as last September, the shares were still worth more than 600p. Then on 16 September THG reported its half-year results, which showed that Ingenuity – the firm’s marketing and logistics platform – notched up revenue of just £85.8m, forcing investors to question the £4.5bn valuation of the division that was implied by SoftBank’s option agreement earlier in the year. That was arguably the moment that investors began to sense that THG’s stock may have been overhyped. Although group half-year revenue came in at £958.8m, up 41.9% year-on-year, the company reported an operating loss of £17.4m.
After that, the shares plunged as investors lost confidence in the former stock market darling. On 2 November BlackRock, THG’s largest institutional investor at the time, halved its roughly 10% stake in the company, sending THG’s shares down 9% that day to a new low of 197p. That prompted chief executive Matthew Moulding, who was also executive chairman in an unusual setup that went against UK corporate governance best practice, to step up efforts to find an independent chair.
Allen tasked with refreshing board, strengthening governance
Almost five months later, these efforts led to the appointment of Charles Allen as non-executive chair. The company said that Allen’s task is to develop the management team and refine the group’s strategy. In a further bid to rebuild investor trust, THG brought forward the end date of Moulding’s “founder’s share”, an arrangement that allowed him to veto hostile takeovers.
The boardroom shake-up also paves the way for THG to pursue a premium listing on the London Stock Exchange, which could see the firm qualify for inclusion in FTSE indices.
The recovery in the share price over the last month suggests that investors' concerns over corporate governance have been addressed, at least to some extent. However, Moulding and Allen have their work cut out, and it will be a long road back to the sort of valuation we saw early last year.
Some investors may be hoping for a buyout, while more patient shareholders may settle for a series of steady, incremental improvements in company performance. For the latter approach to succeed, the new leadership team will first need to articulate a vision for unlocking value across the business. That process may begin when the company announces its full-year results at 7am on Wednesday 27 April.