- Shares fall 22% after suitors walk away
- Company defiant that bids undervalued the business
- Analyst forecasts cash burn out to 2026
Despite bouncing 10% today to 82p shares in online retailer and logistics provider THG (THG) are still down 22% after bidding interest evaporated on 16 June. That was when the two potential buyers of the company - a consortium led by Belerion Capital and King Street Capital, and Nick Candy's Candy Ventures, both walked away.
The company said it wasn’t appropriate to give either party access to its books to conduct due diligence because the indicative proposals ‘significantly’ undervalued the firm.
So where does that leave THG now?
Numis analyst Simon Bowler said the debate now returns to the fundamentals and his updated 2022 forecasts imply a £200 million cash burn leaving a ‘difficult path to cash break-even’.
CASH BURN
Bowler notes that the company guided £165 million of EBITDA (earnings before interest, taxes, depreciation, and amortization) implies an acceleration of organic growth to 20% in the second half, which depends on an unlikely demand recovery.
To arrive at his cash burn estimate, Bowler has modelled £200 million of capital expenditure; £100 million for financing and rent costs, and £60 million of exceptional cash costs.
Beyond 2022, Bowler is forecasting cash losses out to 2026, which, he argues, given lower investor risk appetite provides a challenging backdrop for the shares.
Bowler maintained his hold rating on the shares and commented:’ At 85p THG commands a 0.5-times EV/Sales multiple. Versus peers THG offers sharper near-term cash burn, potentially greater margin recovery (if specific commodity pressures ease) and some level of optionality in Ingenuity.’
