What THG's 'golden share' shakeup means for investors

·3-min read
Britain's Prime Minister and Conservative party leader Boris Johnson (L) is shown around by company founder Matthew Moulding (R) during a visit to a fulfilment centre for The Hut Group (THG) in Warrington, in north-west England on December 10, 2019, as campaigning in the general election enters it's final days. - Britain will go to the polls on December 12, 2019 to vote in a pre-Christmas general election. (Photo by Ben STANSALL / POOL / AFP) (Photo by BEN STANSALL/POOL/AFP via Getty Images)
UK prime minister Boris Johnson (L) is shown around by company founder Matthew Moulding (R) during a visit to a fulfilment centre for The Hut Group in Warrington, England. Photo: Ben Stansall/POOL/AFP via Getty

The Hut Group's (THG.L) founder and CEO Matthew Moulding has said he will give up his "golden" share of the company, in order to pave the way to regain investor confidence, amid a share price that has tanked in recent weeks.

The Hut Group (THG) has said the move is to "promote good corporate governance" as questions swirl around the company's profitability, share structure and valuation. 

The company's stock headed more than 15% higher by the afternoon on Monday in London following the announcement.

THG stock 1-month look. Chart: Yahoo Finance UK
THG stock 1-month look. Chart: Yahoo Finance UK

A golden share is when one person or entity has control of at least 51% of the voting rights. 

Moulding's plan would pave the way for a premium listing on the London Stock Exchange, which looks likely in 2022. Under current rules, a premium listing is not allowed and therefore THG cannot be included in the FTSE (^FTSE).

The share originally gave Moulding ultimate control of the group for up to three years following its bumper float. The change from a dual-class structure is likely to appeal to investors who have had a rocky ride with the valuation in recent weeks. 

“After the anniversary of our 2020 listing we feel that the time is right to make this next step and apply to the premium segment in 2022, thereby continuing the development of THG as we endeavour to deliver our strategy for the benefit of our shareholders, key stakeholders and employees,” Moulding said.

Some analysts say the move by Moulding will go a long way to fixing key issues investors have with the company. Others have doubts about the fix. 

Read more: Tesco starts £500m share buyback

"We should note that this dual class structure was only ever going to last 3 years," said Neil Wilson, chief market analyst at Markets.com. "Bringing forward the move by a year is not exactly sweeping reform. Nor is it a magic wand." 

Wilson notes that governance concerns clearly run much deeper than this one move could fix. 

When THG listed in 2020, it was the biggest London stock market debut by market cap since Royal Mail (RMG.L) in 2013. It net the company £920m ($1.26bn) while shareholders, led by Moulding and private equity group KKR, shared gross proceeds of £961m. KKR sold its entire shareholding.

THG also recently struck a deal with Japanese funder SoftBank (9984.T), which gave it a $1bn fund for acquisitions and marked the launch of THG Ingenuity.

At the time THG said that arm of its business would be a "social media influencer" platform to promote products. The investment deal with SoftBank valued it at $6.3bn (£4.5bn).

Read more: Ford to invest £230m in electric car parts plant at UK factory

Despite the flurry of activity over the past year, there is scant detail on how the different divisions of the company are actually performing. The big question is what each business would look like as a standalone entity, namely the cost base, capital expenditure and cash flow. 

THG has been criticised for not being open enough about the financial breakdown. Until it starts providing some answers, the shares could well remain under pressure as it’s very hard to properly value this business without all the right information. 

Watch: £4.5bn float puts The Hut Group founder in line for £700m share windfall

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