The Hut Group: ‘gem of a business’ rockets on debut

A hugely popular float makes Hut one of the country’s largest companies and could revive the IPO market.

The Hut Group, or THG Holdings (LSE:THG) as it is traded as on the stock exchange, was today valued at more than £7 billion after its shares soared on the first day of trading for London's highest profile new entrant since Royal Mail (LSE:RMG) in 2013.

The 32% surge in conditional dealings for THG Holdings - using the ticker THG - makes the e-commerce consumer brands company more valuable than Burberry (LSE:BRBY), ASOS (LSE:ASC) and Sainsbury's (LSE:SBRY).

But don't expect to see the Manchester-based enterprise in the FTSE 100 index, despite easily being big enough for top-flight status. That's because THG has not been granted a premium listing, a decision which reflects factors such as the different classes of shares in issue.

THG's strong debut, however, will be taken as a sign by investors that there is appetite for more IPOs, particularly in the tech sector. There were only 16 UK new issues in the year to August, but this month has already seen the launch of THG and intentions to float from David Beckham's Guild eSports and fintech entrepreneur Jonathan Rowland's banking app Mode.

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The trend towards tech-focused IPOs is much more advanced in the United States, where Airbnb, cloud data platform Snowflake and gaming content firm Unity are set to follow the launches of online car seller Vroom and business intelligence platform ZoomInfo Technologies (NASDAQ:ZI).

The IPO for THG has raised proceeds of £920 million for the company after institutions including BlackRock and Henderson Global Investors bought new shares at a price of 500p a share. The total offer size was £1.88 billion — equivalent to about 35% of the business — after existing investors including private equity firm KKR took the opportunity to sell shares.

THG shares surged to as high as 658p, valuing the 16-year-old company at £7.1 billion, before later settling at 646.7p. Unconditional dealings begin on Monday. Up until then, the flotation can be cancelled and trades unwound in certain circumstances, although it is incredibly unlikely.  

Interest in the company has been driven by its exposure to the fast-growing beauty and nutrition markets through online brands Lookfantastic and Myprotein. Together with the high-margin e-commerce platform Ingenuity, they account for about 90% of sales.

The IPO prospectus revealed that the company improved overall revenues to £675 million in the first six months of this year, although it still made a bottom-line loss of £49.8 million. This deficit reduced to £10.9 million when excluding restructuring costs and other one-off items.

Analysts at Liberum last week called THG a “gem of a business” that gave investors exposure to high structural growth as both a brand builder and a leading technology provider.

The initial IPO valuation of £5.4 billion represented 3.8 times 2020 sales, but Liberum said a valuation range of between £7 billion and £7.5 billion looked achievable. If reached by December 2022, that would be sufficient to give founder and CEO Matt Moulding £700 million of shares under an incentive scheme.

His continued involvement is a key part of the THG attraction, although Moulding's joint role as chairman and CEO has led to governance concerns ahead of the float. Different classes of shares also offer him superior voting powers to other London-listed companies.

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Moulding pointed out today that some of the world's largest investors had backed the IPO.

He added: “The results of the offer are a clear validation of our business model, significant growth prospects, and recognition of the hard work and talent of all our colleagues.

“Our flotation is the start of an exciting new phase in THG's development and we look forward to sharing that journey with our new shareholders."