Can the THG share price continue to gain after takeover talks end?

The Hut Group’s share price finally got a boost after CEO Matthew Moulding gave up his Special Share which had allowed him to veto any hostile takeover bid. That comes after a protracted period that saw the stock under the cosh following an ill-fated investor day in 2021. Further boosting sentiment is news that sales should come in strong for the first six months of 2023.

• THG share price bounces after CEO gives up ‘golden share’.
• THG says it’s had a profitable first six months of 2023, having seen losses treble last year.
• Barclays and Jefferies see upside after THG trading statement.

THG’s [THG.L] share price is up over 73% this year as interest in the company from private equity investors boosts sentiment. In April, US investment firm Apollo Global Management [APO] approached THG about a potential sale, sending the share price to a 52-week high of 118p in intraday trading on 3 May. Although the talks fell through, THG said that it will instead pursue a premium listing, subject to Financial Conduct Authority approval.

Aside from takeover rumours, THG, whose brands include LOOKFANTASTIC and Myprotein, has said that the first six months of 2023 have seen strong business. But should investors bulk up on the stock?

THG share price muscles up

The THG share price was up over 8% Wednesday after chief executive and co-founder Matthew Moulding gave up his Special Share to ease governance concerns. The share gave Moulding the right to veto any hostile takeover of the company from another firm. The move will allow THG to enter the FTSE 250, subject to regulatory approval.

Moulding had been due to give up the share back in October 2021 after an investor day back-fired and triggered a sell-off in the stock. Investors were put off after it appeared that interest from Japanese investing house SoftBank [SFTBY] was cooling. This led to a near 35% drop in the Hut Group’s share price on 11 October 2021.

THG’s share price has had a tumultuous time since listing its £5.4bn IPO on the London stock exchange in September 2020. Having listed at 500p a share, the stock has crashed over 87%, closing Friday 23 June at 76p. The last four months of 2021 were particularly painful for THG’s share price, with the stock plummeting over 67%.

Earnings expected to be up in H1

Alongside the long-term drop in THG’s share price have been a drop in sales. THG’s losses tripled to £550m last year, while revenue for the first three months of this year have declined 8.6% to £469.4m.

Despite this, THG said that it expects to have had a strong first six months of the year, according to a trading statement published 21 June. Adjusted EBITDA is expected to be £44m to £47m, up from £32.3m the year before.

The group said that free cash flow for the half year should be around £40m, ahead of expectations. It added it was on track to be cash flow neutral by the end of the year.

THG said its nutrition business had a ‘particularly strong start to the year’ with last year’s pricing to help customers through inflationary pressures in 2022 now “paying dividends”. THG added that an easing of commodity prices had helped improve margins, which should continue in the second half of the year.

The trading update caused some movement in analyst price targets. Barclays [BCS] reinstated coverage of the stock with an ‘equal weight’ rating along with an 87p price target on June 22.

The Barclays analysts said that THG’s trading update had been “encouraging” and that an attractive upside case could emerge if “better delivery on forecasts continues”. That same day Jefferies [JEF] upped its price target on THG from 85p to 95p. The Jefferies analysts said that cash generation appeared to be ahead of expectations.

Having gained this year, is there more upside for the Hut Group share price? Analysts tracking the THG share price have an 80.5p target. Hitting this would deliver a 5.9% upside on Friday’s close.