Directors’ Deals: Chair adds abandoned THG to shopping cart

Tongues have been wagging about a takeover at The Hut Group for months, but even this speculation has been unable to lift the gloom surrounding the digital retailer.

The owner of the Lookfantastic and MyProtein sites now trades at less than a tenth of its post-IPO highs of more than 800p, as investors have grown concerned about governance and strategy. Despite THG posting sales growth of 35 per cent in 2021, a broader cooling towards internet retail stocks has seen it join Ocado, AO World and Asos on the list of London’s most-shorted stocks in 2022.

Shares sank to an all-time low of 69.6p per share in June after two suitors separately scrapped plans to buy the company. Both the investment firm of property mogul Nick Candy, and a consortium led by Belerion Capital, whose previous 170p per share offer in May was rejected for “significantly undervaluing” the company, had been considering bids. Since neither came to the table before the June 16 deadline, it will be six months before they can make another offer.

In the meantime, THG faces a “difficult path to cash break-even”, according to Numis, thanks to rising costs and already-low cash margins of 7.4 per cent in its beauty ecommerce businesses, while the younger tech logistics division Ingenuity is still getting off the ground. S&P Global Ratings cut its outlook for THG to “negative” in May, citing likely pressure on profitability over the next 12 months.

Nevertheless, THG’s new chair Charles Allen took advantage of the group’s low valuation to purchase nearly £1mn worth of shares. The former ITV boss bought 1.15mn shares at 86p each, though their value fell by 12 per cent in the days following the transaction.

Allen joined the board in March to strengthen governance at THG, after founder Matthew Moulding was criticised for jointly holding the roles of executive chair and chief executive, as well as owning a “golden share” that allowed him to veto takeover bids. Moulding, who owns a 23.5 per cent stake in the company, has previously hinted at ambitions to take THG private again.

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Lords Group chief executive buys as finance head sells

Investors who scour market announcements for directors’ deals in the hope of learning something about insiders’ views of a company’s performance might have been a little confused by Lords Group Trading’s latest declaration.

On the one hand, chief executive Shanker Patel bought more than £480,000 worth of shares directly, plus a further £240,000 through a pension fund controlled by himself and other family members, bringing their combined stake to nearly 52 per cent.

On the other, chief financial officer Chris Day and group acquisition and integration director, Tim Holton, each sold stakes worth £650,000.

Earlier filings go some way towards explaining this.

Lords Group, which is majority owned by the Patel family, is a buildings material distributor that opened its first branch in 1984 and has grown fairly rapidly through acquisitions, completing eight major deals between 2016 and its flotation on Aim in July last year.

The IPO allowed the company to raise £30mn and for existing shareholders to offload £22mn of shares. Two years before the float, Lords set up a Company Share Option Plan to incentivise some key employees to stay with the business. These options vested on June 30, giving Day more than 2.6mn shares and Holton almost 1.37mn. Both decided to cash in 924,000 shares each for what the company said were “personal planning reasons”. 

Lords posted a robust set of debut results for 2021 in May, with pre-tax profit more than doubling to £8mn on a 26 per cent increase in revenue to £363mn. 

Although the Construction Products Association forecasts a slowdown in the repair, maintenance and improvement market the company serves, in a trading update ahead of its AGM last week Lords reiterated guidance that revenue would grow by around 20 per cent and adjusted pre-tax profit by 57 per cent this year.

Like other builders’ merchants, trading in Lords’ shares has been rocky. After debuting at 95p, they hit a high of 148p in September but have halved in value since.