TIDMKLSO
RNS Number : 3309O
Kelso Group Holdings PLC
31 January 2023
31 January 2023
Kelso Group Holdings Plc ('Kelso')
Investment in THG Plc ('THG')
Kelso was established in 2022 to identify, engage and unlock
trapped value in the UK stock market. Kelso's strategy is to invest
in situations where there is an anomaly between the intrinsic value
of a company and its stock market valuation. Kelso will offer its
assistance to companies to help unlock that value. Kelso will, in
particular, seek opportunities where it believes the value of the
sum of the parts of a business is significantly greater than its
current value.
Kelso is pleased to announce its first investment meeting its
investment criteria with the purchase of 5.0m shares in THG at an
average price of 54.5p, representing 0.4% of THG.
The Board of Kelso believes that THG is a hugely exciting but
significantly undervalued business. Matthew Moulding the THG
founder and CEO has built a business with true global scale in two
global growth sectors of Nutrition and Beauty employing around
c.8,000 employees with 18 fulfilment centres shipping to 195
destinations.
On 17 January 2023, THG announced record revenue for the year to
December 2022 of GBP2.25bn, albeit with a reduced core adjusted
EBITDA on a continuing basis of GBP100m, following EBITDA of
GBP161m in FY21 and GBP151m in FY20. However, we believe this
reduced EBITDA is temporary and will be enhanced with operational
improvements and not least from deflation in certain input prices,
for example in whey. We also regard THG's comment that Ingenuity is
"in advanced discussions to provide long-term software solutions
for several significant enterprise clients" as positive news.
Kelso believes that the THG Board's actions, through the new
chairman Charles Allen, Lord Allen of Kensington CBE, to improve
governance and expand the executive team will pay dividends in
2023. We think that the recent appointment of Damian Saunders as
CFO, previously a senior partner at Deloitte, as announced on 24
January 2023, is positive, especially given his knowledge of THG
having been involved with the 'separation' project which formally
gave the three main divisions their own corporate independence.
Kelso believes that the separation provides THG with significant
strategic optionality. The potential to separate parts of the
business could provide THG shareholders with significant upside
from the valuation of the business today. Kelso believes that the
current stock market value does not reflect the underlying value of
the sum of each of the main THG divisions.
In particular, Kelso believes that the Nutrition business, which
incorporates the MyProtein and MyVegan brands, could alone be worth
in excess of the entire current market capitalisation of THG. This
is evidenced by the valuations of deals in that particular sector
in the last few years, caused in part by the shift in consumption
away from chocolate and sugar to health and nutrition, a trend
which we believe will continue.
For the reasons above, Kelso believes this is an exciting first
investment for its shareholders.
Background on THG
At the close of business on 30 January 2023, THG had a market
capitalisation of GBP710m. THG was listed on the London Stock
Exchange in September 2020 with a market capitalisation of
GBP5.4bn, raising GBP888m of new equity for the company at 500p and
then a further $1.05bn at 596p in May 2021. Post IPO, THG has
reported acquisitions for a total consideration of c.GBP945m.
THG announced on 17 January 2023 record sales for the year ended
31 December 2022 of GBP2.25bn with the three principal divisions,
being Beauty, Nutrition and Ingenuity contributing sales of
GBP2.1bn with core adjusted EBITDA of GBP100m. Sales in the Beauty
division were GBP1.2bn; the Nutrition division had sales of
GBP672m, including the MyProtein, MyVegan and MyVitamin brands; and
Ingenuity, THG's fulfilment business, had sales of GBP208m. Various
of the brands within the Beauty and Nutrition divisions are global
digital leaders in their own space, for example Lookfantastic.com
is the world's leading online specialty beauty retailer. Also
stated in the announcement was year-end net debt of c. GBP200m,
reducing to c. GBP160m upon receipt of GBP40m of proceeds from
non-core freehold asset disposals in H1 2023.
Since the IPO, there has been significant investment in
acquisitions of many industry leading businesses. Following its IPO
in September 2020, THG purchased Perricone, the global beauty
brand, for GBP51m. In February 2021, it purchased Dermstore for
GBP261m, the number 1 US online retailer of prestige skin care. In
December 2020, it purchased Claremont Ingredients and David
Berryman for a combined value of GBP69m. In May 2021, it purchased
Brighter Foods for GBP44m a best-in-class bar formulation and
production company.
In June 2021, THG purchased Bentley Laboratories for GBP180m, a
US prestige beauty developer and manufacturer which worked with 70
global beauty brands. In August 2021, it purchased Cult Beauty, a
niche beauty portal, for GBP291m.
In June 2022, the board of THG said that having received
non-binding takeover approaches from numerous parties, that all of
them were unacceptable as they significantly undervalued the
company. The only price stated in those announcements referred to a
non-binding offer of 170p.
Note: M&A transaction values sourced from THG annual
reports
John Goold, CEO of Kelso commented:
"Matthew Moulding, a British entrepreneur, started THG from
scratch in 2004, which has grown to over GBP2.0bn of revenue,
employing c.8,000 employees the majority of which are in the UK.
This transition from entrepreneurial start up to a large listed
corporate is never easy but we think THG is now putting in all the
building blocks to achieve the success it deserves."
For further information please contact:
Kelso Group Holdings Plc +44 (0) 75 4033 3933
John Goold, Chief Executive
Officer
Mark Kirkland, Chief Financial
Officer
Jamie Brooke, Chief Investment
Officer
Zeus (Broker) +44 (0) 20 3829 5000
Nick Cowles, Matt Hogg (Investment
Banking)
Ben Robertson (Corporate Broking)
About Kelso
Kelso was established in 2022 to identify, engage and unlock
trapped value in the UK stock market. Kelso's strategy is to invest
in situations where there is an anomaly between the intrinsic value
and prospects of a company and its stock market valuation. Kelso
will, in particular, look for situations where it believes the sum
of the parts of a business is greater than the current value. The
company completed a fundraising of GBP3m in January 2023. Kelso
believes that the current market conditions are such that there are
situations where UK listed companies' valuations are not
appropriately matched to their underlying intrinsic value. There
may be instances where Kelso itself could be used as a vehicle by
an undervalued company to spin off a subsidiary into its own
listing. Such a transaction would undoubtedly constitute a reverse
takeover for Kelso.
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END
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January 31, 2023 02:00 ET (07:00 GMT)
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