Investors should take a cautious approach to THG takeover talk

theguardian.com:

News of numerous takeover approaches sounds thrilling but outside investors in THG, formerly The Hut Group, would be wise to contain their excitement. The online retailer’s share price had sunk so low that the company was being valued at half the level of its annual turnover, so it would almost have been odd if nobody wanted to have an exploratory poke around the aisles.

Nor did THG say at what price the “indicative proposals” were pitched, only that the founder and chief executive, Matthew Moulding, and the board thought they failed to reflect “the fair value of the group”. The definition of a fair price in this context is anybody’s guess. THG floated at 500p in 2020 but, even after Thursday’s mini relief rally, now trades at 110p.

No approaches remain on the table, the company added, so shareholders should probably assume that THG’s attempt at investment redemption will have to follow the harder road that involves grinding out the reliable numbers.

On that score, Thursday’s report was mixed. Revenue guidance for 2022 – growth of 22-25% – is intact and, while pre-interest, pre-depreciation profit margins for 2021 were a bottom of the range 7.4%, they didn’t qualify as a miss.

On the other hand, margins are probably going lower this year as input inflation hits in key areas of protein shakes and makeup. And true believers in the tale of building infrastructure to deliver abundant long-term growth still have to look past the operating losses (a thumping £137m last year).

Then there is Moulding’s apparent obsession with corporate reinvention – the promised demerger of the Lookfantastic-based beauty division plus the Japanese group SoftBank option to buy 20% of the Ingenuity, the bit that provides “end-to-end technology