THG shares dip on demerger plans

Investing.com -- Shares of THG (LON:THG) fell on Tuesday after the company said that it is reviewing potential structures to demerge THG Ingenuity.

At 6:52 am (1052 GMT), THG was trading 9.6% lower at £58.10.

The demerger would leave THG Beauty and Nutrition as standalone businesses, with Ingenuity operating independently. 

“We see this as a positive step in the long term equity story of THG,” said analysts at Barclays (LON:BARC) in a note.

While THG has secured tax clearances from HMRC, no specific timeline has been provided for the demerger. 

“From a cash perspective this would be quite substantial as close to c£80m of their c£100m capex sits in their Ingenuity business,” the analysts said

The company also reported its half year results with its THG’s Nutrition division, including its Myprotein brand, has underperformed, with revenues down 8.5% year-on-year at constant currency. 

The main drivers behind this decline include FX headwinds, particularly from the weakening Japanese Yen, and disruptions caused by the Myprotein rebrand, which led to lower-than-expected average selling prices (ASPs). 

ASPs were down 11% YoY due to the stock disruptions, although the company is optimistic about a recovery as the rebranding efforts conclude.

THG has lowered its FY24 EBITDA forecast for Nutrition, with the company now expecting to meet the lower end of consensus, at approximately £134 million, which is around 8% below market expectations.

Despite the Nutrition woes, THG’s Beauty and Ingenuity divisions provided a more optimistic outlook. Beauty revenues grew by 3.8% in the first half at constant currency, with recovery in manufacturing volumes and cost-saving measures improving EBITDA margins. 

Meanwhile, THG Ingenuity’s external revenues rose by 14.1%, though the overall division saw a 4.2% decline due to internal restructuring.

“We lower our PT by c9% from 101p to 92p after we cut our FY24 Nutrition adj. EBITDA by c14% yielding a margin of 11.5%,” Barclays said.