Can the THG share price maintain its early 2023 gains?

The THG share price has had a positive few days so far in 2023, but this can’t distract from its longer-term struggles. The ecommerce health, beauty and nutrition retailer faces more uncertainty after a leading credit insurer reduced cover to its suppliers, while it’s recently been revealed that CEO Matt Moulding was the recipient of a controversial record loan from Warrington Council. 

THG [THG], formerly known as The Hut Group, which owns a number of direct-to-consumer retail sites including sports nutrition brand Myprotein, and specialist beauty retailer Lookfantastic, has rarely been out of the headlines since its spectacular 2020 IPO. Most recently, the news emerged that CEO Matt Moulding – who still holds an unusual ‘golden share’ despite previously having said he would relinquish it – was the recipient of a controversial record loan from Warrington Council, as reported by the FT. With institutional investors making up almost half of the Manchester-based company’s shareholder base, what are THG’s share price prospects for the year ahead?

How has the THG share price been performing?

Despite a strong start to 2023 – THG stock rose 9.95% last week to 48.27p – the company’s share price is still down 18.60% over the last month, and a whopping 75.15% year-on-year. The shares have slumped 75.68% from the 52-week high at 198.50p on 10 January 2021 but, on an upbeat note, have moved up 54.96% from the 52-week low of 31.15p, set on 11 October last year. A little over a year ago, on 10 September 2021, THG’s share price stood at 664.50p. The stock has plummeted an eye-watering 92.74% since then, as of Friday 6 January’s close. 

Investors have been unnerved by THG’s governance concerns – which have been partly assuaged by the appointment of independent chairman, Charles Allen – and questions over the value of its Ingenuity technology division, while THG has also had to contend with the general sell-off in shares of tech and online retail stocks in these challenging macroeconomic conditions.

Further woes for THG stock holders

THG’s latest blow came after it was revealed by the Guardian that credit insurer Allianz Trade has reduced its credit insurance cover for THG’s suppliers, amid looming recession concerns. THG isn’t alone in this, with Asos [ASC], AO World [AO], and Ted Baker among other retailers to have suffered.

The cut in credit insurance could put pressure on THG’s cashflow, as suppliers may seek upfront payment in the absence of sufficient insurance protection against the retailer going under. While the reduction in cover was reportedly “small”, and has no bearing on THG’s financial position, it’s only likely to add to the pressure on THG’s share price.

The online retailer attracted more headlines in December, after the FT reported that Moulding received a record commercial loan from Warrington Borough Council of £202m, following the revelation that an incorrect internal report had said the loan was actually for THG. The council report referenced THG’s financial strength, and “proven business model centered around recession-proof products”. However, the loan in fact went to Icon 3 Holdco and three related borrowers, which are all owned by Moulding. Lawyers for Moulding told the FT that the council was aware that THG was not intended to be a counterparty.

Will Moulding give up his golden share?

Moulding still has his golden share, which gives him takeover-blocking rights, despite saying he would relinquish it over a year ago, in the interests of moving towards a more traditional corporate governance structure. That as yet unfulfilled promise swiftly followed a now infamous presentation to the City, which precipitated a dramatic same-day 35% decline in THG shares.

The move was supposed to lead to THG moving from a standard stock market listing, to a premium one. Moudling’s special rights actually expire in eight months’ time, but shareholders may well be wondering why the company hasn’t followed through with the promised changes.

What’s next for THG shares?

With institutional investors constituting 43% of THG’s overall shareholding, according to Simply Wall St, there’s little doubt these powerful shareholders will be far from satisfied with the THG stock performance. Should some of these investors fail to foresee an upturn in THG’s share price, the stock could face further downside pressure, coupled with a heightened level of volatility.

The 12 analysts offering 12-month price targets for THG have a median target of 52.50p, with high and low estimates ranging from 190p to 35p, according to the FT. The median estimate represents a potential upside of 8.76% from last week’s close at 48.27p. The latest analysts’ recommendations on THG stock – five ‘buy’, one ‘outperform’, seven ‘hold’, one ‘outperform’ and no ‘sell’ ratings – point to a consensus hold, but lean to a more positive outlook.