THG, the London-listed e-commerce group behind beauty brands such as Lookfantastic, will this week signal to investors that it is exploring plans to spin off Ingenuity, its technology services arm.
Sky News has learnt that THG, which also owns a range of brands in the health and nutrition sector including MyProtein, could announce as early as Tuesday that it is considering the move, which would transform it into a cash-generative dividend stock.
It would be the latest in a series of plans studied by THG’s board, which is chaired by Lord Allen of Kensington, to inject momentum into its share price after a fractious ride as a public company.
Matt Moulding, THG’s founder, has been a vocal critic of investors and the media, as well as London’s listing rules, which he has argued have stymied technology companies like the one he co-founded two decades ago.
A demerger of Ingenuity, which serves clients such as Frasers Group, one of Britain’s biggest high street empires, would allow THG to retain the material free cashflow generated by its other operations.
This could, according to analysts, pave the way for it to pay its maiden dividend to shareholders.
THG’s results for its last financial year revealed that excluding Ingenuity, it generated more than £80m of free cashflow.
One analyst said this could rise to more than £100m in the near term as the impact of inflation eases and profitability restores to historic levels.
Repositioning THG, which also owns the freesheet business newspaper City AM, as a dividend-yielding stock would be welcomed by many institutional investors.
The company, previously known as The Hut Group, became one of Britain’s most valuable tech start-ups, raising hundreds of millions of pounds from blue-chip investors such as BlackRock, the world’s biggest asset manager.
It went public in 2020 at a valuation of over £5bn, since when it has explored a number of significant transactions, including being taken private again.
One source said THG was also likely to announce plans to recategorise its shares on the recently reformed premium segment of the London stock market.
This would make the company eligible for index inclusion and bolster liquidity in the stock.
As a simplified wellness and beauty brand owner, THG’s board is said to believe that it would also be an easier stock for potential investors to understand.
The prospective demerger of Ingenuity would probably see the technology and logistics division become a privately held, rather than listed, company, reflecting the difficult time that capital-hungry tech stocks have had on the London market.
Ingenuity, which has also counted Homebase among its clients, already has its own leadership team, with Alastair Crane appointed as chairman last year.
As a long-term infrastructure technology player with 4,000 staff and 12 distribution centres globally, Ingenuity is likely to require significant additional funding as a standalone company.
One investor said Ingenuity’s cash consumption and three-to-five-year horizon before it breaks even meant that private shareholders were likely to be the right stewards of the business during that period.
THG declined to comment on Monday evening.
Note: Mark Kleinman is a paid columnist for City AM