Analysts’ H1 forecasts upbeat on THG shares and beauty business

Wider market uncertainties have weighed on the THG share price in 2022, though the company still reported strong full-year results for fiscal year 2021. Investors will be hoping for a repeat of this performance at its H1 results announcement on Thursday 15 September.

The Hut Group (THG) [THG.L] is set to release its half-year earnings on 15 September and while inflation could weigh on its results, analysts see strength in its beauty business. The troubled UK-based ecommerce retailer has seen its valuation slashed by more than 90% since its much-awaited IPO in 2020, when it raised £1.9bn in its stock market debut.

The company has rejected takeover bids and an investment proposal from SoftBank [9984.T] recently fell apart, but its low valuation means some analysts are recommending investors buy the dip.

After reporting full-year earnings for fiscal year 2021, the company could be in a stronger position than its valuation suggests. In April, the company forecast “strong revenue growth” for 2022, expecting sales to rise 22–25% year-over-year. However, the company cut its EBITDA margin guidance from 8% to 6% as a result of inflationary pressures.

With UK inflation hitting another 40-year high of 10.1% in July, and some analysts projecting that it could reach as high as 18%, investors will be awaiting further update from THG about how the company plans to maintain sales and profit margins.

How has THG performed since its IPO?

The THG share price has fallen 76.4% since the start of the year, closing at 54.14p on 12 September. By comparison, the FTSE 100 is flat year-to-date. Over the past six months, the stock is down 37.6%.

However, this wasn’t always the case. THG launched its IPO on the LSE to considerable fanfare in one of the biggest floats the exchange has ever seen, raising £1.9bn in its debut. The firm floated at 500p in September 2020 and its shares had risen to 837.8p by January 2021.

However, in its first listed year the company missed profit forecasts, causing its share price to crash in 2021. It’s more recently battled the tech selloff and weakened consumer confidence. Against this backdrop, the stock has plunged 91.9% over the past 12 months.

Strong 2021 overshadowed

Despite the poor performance of THG shares, the company reported promising figures for full-year 2021 and the first quarter of 2022. Full-year revenue was up 35.1% to £2.18bn, while first quarter revenue came in 16.3% higher year-over-year at £520.2m. Its THG Ingenuity ecommerce solution was particularly strong in both periods, with revenue growth of 41.5% in the full year and 28.6% in the first three months of this year. Following the announcement on 21 April, the THG share price closed 15.9% higher than the previous day as investors digested the good news.

However, THG’s share price took a tumble in June when it rejected a number of takeover bids, including a £2.07bn offer from investment firms Belerion Capital Group and King Street Capital. It said the bids “significantly undervalued” the company. More crushing news arrived in July, when plans for Japanese conglomerate SoftBank to invest $1.6bn in THG were called off.

Analyst outlook remains upbeat

Despite an uncertain outlook for the ecommerce industry, analysts remain upbeat on the stock’s prospects, suggesting now could be the time for investors to buy the dip — particularly if THG can repeat its last earnings performance. 

At MarketScreener, among 12 analysts offering ratings, the consensus is to ‘buy’ the stock. Their mean 12-month price target is 223.46p, representing a potential 300% rise from its close of 54.14p on 12 September. 

In June, Citi analysts resumed coverage on THG with a ‘buy’ rating and 220p price target, which would imply a 306.4% upside on its most recent close. In the accompanying research note, the analysts noted that its beauty division is a “strong player in a very attractive market” and “could make up for the total valuation of the company”. THG’s beauty business has indeed seen strong growth in recent quarters, with revenue up 48.7% year-over-year in fiscal year 2021 and 19.9% in the first three months of 2022.