Who might buy Ingenuity from THG?

And why the magic core of the business is on the block, not a retail division

Hello Rainmakers,

This week the board of THG looked to start the next chapter of the company’s so far lamentable life as a stock market company by proposing a surprising strategic pivot: demerging Ingenuity, it’s engine at the heart of the business, so it can concentrate on the cash generative Beauty and Nutrition bits of the business.

Who knows what goes on in the hive mind of founder Matthew Moulding, or what gets talked about at strategy days and board meetings, but this is one that has definitely set the hares running in the City, and also amongst would be purchasers.

That’s today’s story. Our attempt to second guess a misunderstood genius at work? Or just the latest blunder in the short history of the North’s most fascinating business soap opera? Or something else entirely.

Who might buy Ingenuity from THG?

The analyst comments were pretty brutal. The market reaction seen by the share trading even more so.

There was a bounce in early trading of THG shares on Tuesday morning as the Regulatory News Service confirmed what had been leaked to Sky’s well-connected business reporter Mark Kleinman (columnist at City AM, owned by THG) the night before.

The beleaguered ecommerce business was considering selling off its precious core, Ingenuity, in what it was calling a “demerger”.

Confirming plans to spin-off Ingenuity, THG said it was "undertaking detailed work to review potential structures to facilitate the demerger".

It said tax clearances had been received from HRMC but was vague on a timetable, or a process.

"Post a demerger, the group would consist of THG Beauty and THG Nutrition, two globally leading consumer businesses, which are highly profitable, cash generative and capable of paying dividends," the statement said.

In chief executive Matthew Moulding’s own words: “Finally, after extensive discussions with shareholders over the past 12 months, THG is progressing options to demerge THG Ingenuity, leaving our highly profitable and cash generative global Beauty and Nutrition businesses within THG PLC. The appropriate tax clearances have been received, while the necessary separation work has previously been undertaken.”

Shares initially traded around the overnight price of 63p, but no sooner had the conference call ended that the price before plunging to 54p by midday. Maybe the analyst briefing call at 9am revealed a few things they didn’t like, as research notes dripped out through the day expressing a mixture of confusion and excitement at the decision.

Though, to be fair, it’s worth noting too that the news was wrapped up with some positive news about joining the premium list on the stock market, but less happy figures on the performance of the nutrition miss. On balance that seemed to have weighed against the better news. 

Andrew Wade at Jefferies Wade also recognised the two high quality, strategically relevant, cash generative assets in Beauty and Nutrition, but also reminded everyone that  on floating in 2020 Ingenuity was touted as the secret special spices of THG. “When it first joined the stock market, and was once valued by SoftBank at $6.3 billion for its ability to offer third parties a platform to sell products online and handle all order and fulfilment.

"It hasn’t quite lived up to the initial lofty expectations and so THG might set it free," he said.