Shares in THG, or The Hut Group, finally bounced on Thursday, but, given how far they’re fallen, even a 10% move doesn’t repair the damage. At 306p, the price is still only modestly above its level on Tuesday after the disastrous City presentation where founder Matthew Moulding tried to display the wonders within the Ingenuity subsidiary but drew a collective gasp of: “Is that it?”
In a blistering research note, Numis analyst Simon Bowler ascribed a value of precisely zero, or “option value”, to Ingenuity, the bit that provides “end-to-end technology services” – web-hosting, marketing and logistics – for brands, include THG’s own. “Ingenuity is critical in many ways, but feels increasingly nascent, opaque and lacking sufficient proof points to justify a significant valuation,” he wrote. He values the whole company at 230p, or less than half last year’s float price.
There could be demonstrable value within Ingenuity if THG’s other divisions – beauty and nutrition – are seen to pay through the nose, or even just commercial rates, to use Ingenuity’s services. But Bowler’s point is obviously right: shuffling profits from one THG pot to another doesn’t create any value overall.
Instead, the excitement around Ingenuity was meant to come from recruitment of big companies’ brands to plug into the system. The most eye-catching client – hyped to the hills during last year’s flotation – is Nestlé, but there seems to have been no update on Tuesday on that relationship, which was a serious omission when your “land and expand” strategy involves getting a foot in the door and then winning more business from the partner. If Moulding didn’t see the Nestlé question coming, he was naive in the extreme. Bleating about short-sellers only adds to the impression.
He is founder, chair and chief executive, so only has himself to blame. But he’s not alone in the boardroom. In the absence of an outside chairperson, the critical figure is the senior independent director (SID). She is Zillah Byng-Thorne, the chief executive of magazine publisher Future, whose personal stock could hardly be higher. On her watch, Future has been transformed from stock market straggler to highly rated £4.25bn out-performer. It’s been a tale of perfect execution of an acquisition-led strategy, the sort of thing Moulding would love to imitate.
Future’s shareholders would, one assumes, forbid Byng-Thorne from devoting many more hours to THG. But, when you agree to be the SID of a public company, you can’t wash your hands when trouble arrives. She could do two things at THG.
First, give outside shareholders an assurance that the mammoth sums of capital raised (£920m at float and another £770m via a placing in May) are being spent wisely and that THG can happily live without a further injection from SoftBank of Japan, which surely won’t exercise its option to buy 20% of Ingenuity for $1.6bn (£1.17bn) in current circumstances. Second, she could try to persuade Moulding that it is in his own interests to have a proper chair and stricter governance scrutiny.
Whether she likes it or not, Byng-Thorne is now a key player in this intriguing drama. She’s the boardroom figure with clout in the City, and these are the moments when a SID is supposed to earn her fee.
QinetiQ finds even defence isn’t immune to supply chain upsets
Is nowhere safe from supply chain upsets? A defence company specialising in cybersecurity gadgetry, you might have assumed, would be a prime candidate for immunity since the mission-critical military stuff tends to get through. But, no, QinetiQ, which was privatised in 2003, said it was “experiencing technical and supply chain issues on a large complex programme”.
The FTSE 250 company hopes to limit the financial write-down to less than £15m, which would be about 10% of expected operating profits this year, but the share price still slumped 13%. It doesn’t help that, as a defence supplier, QinetiQ is obliged to offer few details and speak only about “our customer” – the best guess is that the problem relates to components for clever robots for the US military.
If that’s the extent of it, the clouds should clear eventually: orders are up 25% for the half-year and the only other slight wobble was a profit margin at the “lower end” of the previously advertised range of 11% to 12%.
But these days a weak share price is a moment for any quoted UK defence company to be on alert. The sector doesn’t need yet another opportunist US acquirer to emerge; we’ve had more than enough of those this year.