THG: higher entry prices sought from bidders

It is not immediately clear how a £2.07bn bid undervalues a company with a £1.4bn market cap. But THG, online purveyor of cosmetics and protein powders, was quick to rebuff the bid from a brace of investment firms — as it has a series of earlier “unacceptable” offers.

The group, founded by Matthew Moulding, has long struggled with valuation dysmorphia. Investors initially proved willing enablers, accordingly the company had a market capitalisation of £5.4bn on its debut on the London stock exchange nearly two years ago.

Back-of-the-envelope calculations using round numbers suggest 170p a share is perfectly reasonable. That would value the equity at £2.07bn, or £2.36bn on a fully diluted basis. Adding on THG’s forecast net debt of about £160mn gives an enterprise value of £2.2bn or £2.5bn. Even on the undiluted share base, that gives an EV/ebitda multiple of 13.8 times, pretty much in line with the board pool of ecommerce players.

This is not quite the company THG hopes to keep. Its much-hyped Ingenuity unit is designed to give it tech credentials (and multiples). But the unit, which provides a tech and logistics gateway for third parties such as Nestlé or Coca-Cola looking to sell directly to consumers, only contributed revenues of £194mn last year, or less than a tenth of group sales. SoftBank’s call option to take a one-fifth stake for $1.6bn looks dead in the water.

Aware of the prevailing winds, THG has set out steps to enhance value both operationally and in corporate governance. It has pledged to unwind an arrangement that gives Moulding a special share to veto any hostile offers.

Bidders in the frame — at least those which have been disclosed — are a motley crew. Property tycoon Nick Candy was another early stage bidder on Thursday. Long-suffering shareholders, happy to clutch at straws, sent shares up by a quarter to 145p by lunchtime on Friday. Their real hope, presumably like that of Moulding, will be that the flurry of activity flushes out bidders with more bulked-out offers.