The Hut Group (THG) shares: where next after its IPO?
After its successful IPO, The Hut Group share price is in good place to rise within the next few months. Yet its singular governance is raising some concerns among analysts.
The Hut Group (THG), one of the UK’s leading e-commerce player, entered the London stock-exchange successfully last week on September 21.
It reached a £5.4 billion valuation on its IPO, nearly £1 billion more than the British company was expecting to get.
However, with the violent sell-off that struck the markets these last few days, The Hut Group share price lost more than 4% last Friday and another 3.1% yesterday. It rebounded today, up 5.95%, at 609p, but remains a little bit lower than its introduction price at 625p.
After its better-than-expected IPO, but a tumble in its first week, what is the outlook on THG in the months to come?
Analysts and investors are pretty hawkish on THG share price even if the company’s governance could be a worrying matter for some specialists.
The Hut Group’s IPO, a promising start for its share price
There’s no doubt The Hut Group’s activities are among the best-in-class during times of uncertainty. As a UK tech stock THG is evolving into a very attractive business. Tech stocks are now the fourth largest sector on the London Stock Exchange, having almost quadrupled in size over the last five years.
It is the biggest IPO in London since Royal Mail in 2013 and the largest ever tech IPO (based on market capitalization at listing). The strong appetite of fund managers for The Hut Group public offering is showing that the attraction for UK tech companies is currently very high, which will actually THG share price to rise.
Why The Hut Group share price could rise in the medium-term
Beyond the overall appetite for tech companies, investors are seduced by THG strong margins and business-model.
Founded in 2004, the Manchester-based company has become an important e-commerce player thanks to a successful external-growth strategy. THG owns various brands in beauty, wellness and sport nutrition like MyProtein, LookFantastic and GlossyBox.
It also develops and operates third-party brand e-commerce websites with its in-house solution, THG Ingenuity, which provides a full service, from payment infrastructure to brand development and creative content services. Brands with strong reputation like Nestlé, Procter & Gambles, Nuxe, Nintendo and Johnson & Johnson are using its technology.
THG Ingenuity business model is close to Amazon Web Services solutions, but on a much-smaller scale and only concentrated in e-commerce. Analysts believe it has a great potential of growth even THG’s revenues are currently led by its own brands in beauty and nutrition.
THG has delivered consistently high sales with near 70% margins and rising shareholders returns.
For 2020, analysts projections are for revenues to rise to £1.3 billion, while Ebitda is expected to slide back from £74.5 million in 2019 to £65.6 million. But they are expecting that it will rebound rapidly.
With the coronavirus crisis, consumer habits have evolved quickly and a lot of retail industries are changing their business model to be more online-oriented. The explosive demand on Amazon and ‘Stay-at-home’ services will probably last for long and provide market opportunities for THG e-commerce solution.
The Hut Group governance raises concern among analysts
Yet not all the investors are sharing a blind enthusiasm on the company’s future because of the structure of the IPO. Founder Matthew Moulding is continuing to run THG as both CEO and Executive Chairman. He is also retaining control of the structure as a founder share for the next three years.
In the IPO prospectus, the company says that keeping Moulding’s positions after the IPO ‘is intended to permit the holder to deter an unwelcome acquisition of the company that would not, in the holder’s opinion, deliver sufficient value’.
Yet this concentration of powers to one single person is quite unusual for a listed company. In fact, this even means THG is ineligible for entry to the FTSE 100, which removes some upside potential for its share price.
At least, one of its historical partners chose not to follow THG in its public adventure: private equity company KKR has sold its entire stake worth £448 million at IPO, which may be the sign of a lack of faith in THG’s future.
But it is also possible that this choice was trivially guided by profit-opportunity. Other investors, like BlackRock, Merian, Henderson Global Investors and The Quatar Investment Authority, remain invested.
How to trade The Hut Group shares
You will able to trade The Hut Group shares as soon as the company goes public. You can either trade on the price of the shares rising and falling with CFDs. To trade The Hut Group shares, follow these steps:
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