Kelso Group Holdings PLC Investment in THG Plc Update (8594F)
13 Juli 2023 - 8:00AM
UK Regulatory
TIDMKLSO
RNS Number : 8594F
Kelso Group Holdings PLC
13 July 2023
Kelso Group Holdings Plc ("Kelso' or the "Company")
Investment in THG Plc ("THG") Update
Kelso, the main market listed investment company, updates its
shareholders on its investment in THG Plc ("THG"). As previously
announced in its Trading Update on 12 July 2023, Kelso confirmed
its ownership of 8.0 million shares in THG, by way of ordinary
shares and CFDs.
Kelso is pleased with the significant progress made by THG
during 2023, including its recent positive trading statement, with
management expecting H1 EBITDA to be approximately 41% up year on
year. This progress has been helped by the external tailwinds of
the significant whey price reduction which should help
profitability particularly in H2. However, the significant non
trading internal progress achieved should not be underestimated;
improved communication to the stock market; improved corporate
governance with new NEDs, early release of the golden share and
reiterated commitment to joining the premium index which we hope
will occur H1 2024.
The one-year anniversary of the announcement of the THG
'Separation' is later this month. The Separation occurred almost
two years after the IPO and importantly allows each business
division to be independently managed and reported on. It also
facilitates possible third-party investment into any of the
divisions and potentially for any of the divisions to be sold
partially or in full. Importantly, Separation therefore gives THG
significant strategic optionality, and we welcome management's
openness and desire to explore these opportunities.
Kelso continues to believe this approach encourages stock market
analysts to value THG on a sum of the parts basis, given the
distinct nature of the various divisions. It is pleasing to see
this change gradually occurring in the analyst community and we
believe this will ultimately lead to the stock market better
appreciating the fundamental value of THG, shifting away from pure
e-commerce benchmark valuations. Liberum, the independent broker,
continues to re-emphasise its 225p target value, over two times the
current share price, but it is also encouraging to see other
analysts increasingly refer in their research to higher potential
price targets centred around the sum of the parts valuation.
In particular, we believe that THG's Nutrition division with its
main brand of MyProtein should be valued as a global consumer
brand, given near $1bn sales, double-digit EBITDA margins and its
increased product innovation in the current year. This division
alone continues, in our view, to be worth more than the market
capitalisation of THG. Kelso's RNS on 21 April 2023 (2) highlighted
this value and the names of some of the global brands that are
increasingly shifting the balance of their product portfolios away
from sugar and chocolate products to more healthy and nutritional
ones. This is made clear when the 13 (1) global consumer product
companies, with an average market capitalisation of GBP85.3bn, that
we believe could potentially have strategic interest in this
division, trade on an average EV/Sales of 4.4x. THG remains valued
on an EV/Sales of c.0.5x.
Centred around the potential value of MyProtein, Kelso has been
pleased to see two further industry developments in the last few
weeks. First of all, on 5 July 2023, Mars Wrigley ("Mars")
announced the acquisition of Kevin's Natural Foods for $800m, a
business founded in 2019. Kevin's Natural Foods reportedly
generated approximately $140m of revenue in 2022 up from
approximately $100m in 2021, which implies a 5.7x historical sales
multiple. This sales multiple is not dissimilar to other recent
sales multiples on acquisitions in the nutrition sector. Secondly,
we note the announcement on 22 June 2023 by Tesco reaffirming its
commitment to support healthy affordable diets. Tesco announced in
this statement its target of boosting sales of healthy products to
65% as a proportion of total sales by 2025. Kelso highlighted in
its RNS on 21 April 2023 (2) date about the global investment
institutions demanding that food brands declare what % of their
product portfolio are 'healthy'. Kelso believes that the
combination of retailers such as Tesco targeting healthier products
coupled with institutional investors equally wanting to understand
the healthiness of the product portfolios of the global food brands
better should leave THG's leading nutrition brand MyProtein in a
strategically advantageous position as it further expands
globally.
THG appears to be in a much steadier and improved position year
on year. With THG's net debt to EBITDA ratio now approaching 1.0x,
Kelso would like to see THG buying back some of its equity or debt
demonstrating the improved confidence that they have shown in
recent announcements.
Kelso continues to encourage THG to deliver on a sum of the
parts realisation and is very pleased that the company are open to
driving this change forward. Kelso is looking forward to the
interim results of THG in September with hopefully some corporate
strategy update which we hope will serve to further explain and
support why the recent Apollo bid was rejected.
(1) Nestle, Coca Cola, Pepsi, Mondelez, Mars*, Hershey,
Ferrero*, General Mills, Lotus Bakeries, Monster, Kraft Heinz,
Keurig Dr Pepper, Danone * Denotes private
(2)
https://www.londonstockexchange.com/news-article/KLSO/update-on-thg-investment-and-placing/15925580
For further information please contact:
Kelso Group Holdings plc +44 (0) 75 4033 3933
John Goold, Chief Executive Officer
Mark Kirkland, Chief Financial Officer
Jamie Brooke, Chief Investment Officer
Zeus (Broker) +44 (0) 20 3829 5000
Nick Cowles, Ed Beddows (Investment
Banking)
Ben Robertson (Corporate Broking)
About Kelso:
Kelso was established in November 2022 to identify, engage and
unlock trapped value in UK listed companies. Through active
engagement and alignment with other stakeholders, Kelso aims to
effect change where existing shareholders are often unable or
unwilling to do so themselves. Kelso is run by John Goold (CEO),
Mark Kirkland (CFO and Strategy) and Jamie Brooke (CIO) each of
which have over 25 years of experience in the quoted and unquoted
UK small and mid-cap market.
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