THG H1 preview: Where next for the THG share price?

Close-up of market chart showing downtrend
Josh Warner
By :  ,  Market Analyst

When will THG release H1 earnings?

THG will release first half earnings on the morning of Thursday September 15.

 

THG H1 earnings consensus

Analysts forecast that THG will report a 16.5% year-on-year rise in revenue in the first half to £1.12 billion, while adjusted Ebitda – its headline earnings measure – is expected to drop 29% to £57.1 million.

 

THG H1 earnings preview

Online retailer and direct-to-consumer ecommerce specialist THG desperately needs a new catalyst to restore confidence considering shares trade near all-time lows, although expectations that growth will slow and profit will come under pressure in the first half suggest the company could find it difficult to revive confidence this week.

Sales are expected to grow across the board, although consensus numbers suggest there will have been a slowdown in the second quarter compared to the first, when sales rose 17.2%. Its largest Beauty division is expected to report a 21.5% jump in sales to £559.7 million in the first half while Nutrition sales are forecast to rise 4.9% to £344.5 million.

Meanwhile, its Ingenuity division that provides an end-to-end direct-to-consumer platform for consumer brands that use it under a Software-as-a-Service (SaaS) model is forecast to report a 40% jump in revenue to £120.1 million. This division will be keenly watched as it ramps-up from a low base, which may become all the more difficult as consumers pullback on spending and businesses become more cautious.

Margins will be much tighter than last year. Its gross margin is set to contract to 43.7% from 46.5%, while its adjusted Ebitda margin is set to be squeezed to 5.8% from 8.5%. This lower profitability will counter the rise in sales and pressure earnings. This is partly because THG has committed to keeping prices low for consumers in the inflationary environment and pledged to absorb some rising costs and raise prices at a slower rate than underlying input costs.

It hopes to return its adjusted Ebitda margin to more normal levels of between 9% to 10% over the medium-term as cost pressures ease and its investments in technology and infrastructure made in 2021 start to reap rewards. Importantly, THG has said it believes the inflationary environment is largely ‘transitory’ and that things should ‘stabilise’ in the second half, although it said rising labour costs are more permanent and that it is aiming to counter this through automation. Plus, it hopes the ongoing rapid growth from its higher-margin Ingenuity platform can also ease the pressure on profitability.

THG has said it is aiming to deliver 22% to 25% revenue growth at constant currency this year. Meanwhile, it has said adjusted Ebitda should be broadly level with the £161.3 million delivered in 2021. That means earnings are set to be weighted heavily to the second half of the year considering the earnings estimates for the first half would only account for just over one-third of the full year target. A reiteration of these targets would be welcomed considering the macro environment has deteriorated since that guidance was last issued in April.

 

THG share price lingers near all-time lows

THG went public back in September 2020 at 500p per share to earn a valuation of £5.4 billion. Shares popped upon listing and climbed as high as 838p by early 2021, but started to decline before falling off a cliff around a year after listing. It has not traded anywhere near its IPO price since falling below it in October 2021 and today it trades near all-time lows at just 52p.

The THG share price lingers near all-time lows as it remains under pressure

Its valuation has been hammered over the past year for a multitude of reasons. CEO Matt Moulding admitted that going public ‘has just sucked from start to finish’ during an interview last year, when he also lambasted short sellers for its performance.

Governance concerns, more sceptical reports from analysts, the decision by some major institutional investors to sell down their stakes, weaker investor confidence and a muddled investment case since announcing plans to spin-off the Beauty division so it can focus on Ingenuity have all contributed to the decline in value. Plus, the collapse of a deal with Japanese conglomerate Softbank, which was set to invest in Ingenuity before backing out earlier this year because of tougher macroeconomic conditions, also added to its woes. THG is still looking for partners after recently completing a separation of its business units.

The slump will be even harder for investors to swallow considering there were multiple parties interested in buying the business earlier this year. It received several unsolicited and indicative proposals but said it turned all of them down because they significantly undervalued the business. In May, it received an offer worth 170p per share that valued THG at around £2.1 billion but Moulding was reported to be holding out for a value closer to £3 billion. The interest quickly disappeared and today THG boasts a valuation of just £660 million.

 

Where next for the THG share price?

The THG share price has lost over 90% of its value since falling off a cliff a year ago and today trades below 52p, just above the 51.50p all-time low hit earlier this month.

The stock appears to have settled in recent days since hitting that all-time low, although this remains a key floor that must hold to avoid bringing fresh lows onto the radar. The RSI remains on the cusp of entering oversold territory, suggesting it could find support around current levels, although the fact trading volumes have been on the decline for the past four sessions suggests there is not a lot of momentum.

On the upside, the first target is the 50-day moving average at 65.88p before it can look to recapture the 70p level of resistance that emerged in late July and held throughout August. Beyond there it can bring the 100-day moving average at 88.50p into the crosshairs, in-line with the brief peak seen in late June as well as the level of support seen throughout April. From here, there will be the opportunity to close the small gap created when the stock plunged in mid-June from here by moving back above the 100p mark.

Notably, the 12 brokers that cover THG still believe there is huge upside potential following the selloff over the past year, with the average target price sitting at 231p – showing they believe the stock can more than quadruple over the next 12 months – although the average target has declined significantly in recent months.

The THG share price trades near the all-time lows seen earlier this month

 

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