TIDMKLSO
RNS Number : 0135W
Kelso Group Holdings PLC
07 December 2023
Kelso Group Holdings Plc ("Kelso" or the "Company")
Update on THG Investment
Kelso, the main market listed investment company and an investor
in THG Plc ("THG"), today released the following statement.
Over recent weeks, the market has seen a growing and concerning
trend of high-quality smaller UK companies exiting the London Stock
Exchange ("LSE"). As such, more than ever Kelso urges boards and
management teams to do everything they can to recognise and address
vulnerabilities, and to maximise shareholder value.
On 30 October 2023, Kelso wrote to the Board of Directors at THG
outlining its conviction in the substantial value creation
opportunity at the company. Kelso firmly believes that THG's sum of
the parts is worth significantly more than the Company's current
market capitalisation, and specifically that a demerger
announcement is the most compelling route to resolving the inherent
disparity between THG's share price and its fundamental fair value.
As Kelso has stated previously, many of the larger global peers for
THG's Nutrition business trade on over 3-7x sales valuation
multiples, while several of the larger global Beauty brands trade
on 3-5x sales. By comparison, THG trades on around 0.5x sales.
Kelso believes that the UK stock market will not ascribe a sum of
the parts valuation to THG, until the company publicly confirms its
intention to demerge its businesses. Such a demerger would allow
each part of the business better access to capital to deliver
further growth and build upon their market leading positions. There
are several good examples of such demerger confirmations on the
LSE, including Whitbread's demerger of Costa Coffee in April 2018
and GSK's Consumer Healthcare business in July 2021. Kelso remains
agnostic as to how THG chooses to prosecute the demerger
strategy.
John Goold, CEO of Kelso commented:
"We believe that the market would respond well to a formal
confirmation of a demerger of THG. Whilst there are a multitude of
reasons why the valuation of many smaller companies remains at very
low levels, companies need to ensure that they have clear
strategies in place to maximise shareholder value and to avoid
unwanted predatory interest at the wrong levels. We hope that THG
adopts our beliefs and announces a strategy for the demerger of its
three stand-out global businesses without further delay".
Letter to THG plc
30 October 2023
Dear Board of Directors of THG Plc ("THG")
I write to you today as CEO of Kelso Group Holdings Plc to
request that you work actively and rapidly towards addressing the
inherent disparity between THG's share price and true value.
Specifically, we request you make an announcement, as detailed
below, and conduct a shareholder review. I assume you feel the same
frustration as shareholders and that you are keen to solve this
issue rapidly. Kelso remains a supportive but increasingly
frustrated shareholder.
Kelso continues to believe strongly that the three distinct
businesses within THG are worth considerably more, as separate
businesses, than the current market capitalisation of THG. Liberum
continues to highlight this disparity in their research. Some of
the world's largest companies operate in the beauty and F&B
sectors and typically, due to the quality of their business, brand
value and focus, trade on relatively high multiples. The stock
market does not value diversified conglomerates, which THG is
deemed to be. We are not aware of any global companies that operate
in both the beauty and F&B sectors. Many of these companies
have historically been extremely acquisitive and in particular
F&B companies are growing their presence in nutritional and
wellness.
Kelso believes that the stock market will not ascribe a sum of
the parts valuation to THG until the board confirms, by way of an
RNS announcement, that its stated intention is to demerge the three
divisions. Demerging the businesses could be done via full,
majority or minority disposals of each division, most likely
sequentially (we refer to any of these options as the "demerger").
We do not propose to suggest the order of events, merely that it is
made clear to shareholders that all options are being considered.
Such an announcement would, in our view, help to close the
valuation gap and so enhance the ability to achieve the true value
in any of the demerger options. Our confidence in this approach was
recently enhanced by the positive share price move resulting from
the CEO Matthew Moulding's strategic optionality comments in the
Q&A part of the Q3 trading statement. However, we believe
comments alone do not go far enough, and that the market wants to
hear formal confirmation of, and articulation of possibilities
regarding the company's intention to demerge. THG's real strategic
optionality is enhanced as the share price increases.
Furthermore, whilst the share price remains low, THG is
susceptible to an opportunistic bid; this is a real risk without a
supportive shareholder base. Another benefit is that such a
statement will significantly reduce your share price volatility
making THG a more attractive investment for traditional long only
funds and stop hedge funds profiting from and driving the current
volatility.
Liberum's price target is 225p per share but only when a sum of
the parts valuation becomes relevant. We think that more analysts
would consider increasing their target prices if a formal demerger
intention announcement was made. We also believe that such a
demerger would be highly advantageous to the valuation of Ingenuity
in turning its internal revenues to external ones, enhancing its
ability to win third party contracts.
In summary, we believe it would be extremely helpful to THG's
valuation if it publicly included the following on an RNS
announcement:
1. The board's intention is to demerge the businesses in the medium term.
2. The demerger could be by way of separate listings with THG
retaining majority or minority ongoing control, or outright
disposals potentially with THG retaining an interest.
3. The board is open to strategic partnerships as part of this strategy.
We acknowledge fully that Kelso is a small shareholder, but we
believe that many other shareholders, both small and large, share
our view, having become increasingly frustrated and impatient. We
urge you to engage an independent third party now to canvas
shareholders for their views, so you can understand which actions
your shareholders wish their board to act on. We believe a demerger
announcement will be one of their principal requirements.
Yours sincerely
John Goold, CEO
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)
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END
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