THG boss should count the blessings of life as a listed company | Nils Pratley
Matt Molding and THG’s board made a big splash last week when they rejected a “highly preliminary” takeover proposal from a consortium led by one of the online retailer’s non-executive directors. It will have been a simple decision, as rolling at 170 pence per share, or £2.1 billion, would be humiliating. Even some of the bears who were stuck in THG at the time of a share price over 600p thought that the fair value of this disconcerting group might be around the 175p level.
But what would Molding do if a serious offer – which some in town define as a stock of around 250 pence – came along? Such a plot seems unlikely (as 139p’s current share price indicates), but the working assumption is that it would be tempted by the idea of going private. He talked about ‘options’ in the infamous interview with GQ magazine last year in which he said listing in London ‘sucked from start to finish’.
If so, Moulage should remember that the grass isn’t always greener elsewhere. If the private lane was intended as an excursion on the way to a US listing, he should note that US markets – the ones he watched with envy – subsequently crushed the value of nearly every tech stock. “pre-profit”.
Second, going public in London wasn’t so bad for THG, all things considered; the company raised £920m of new capital when it listed in 2020, then another £800m exactly a year ago through a placement that brought in SoftBank and investment firm Sofina. Public markets, in other words, have equipped him with the resources to prove that there is a real long-term business at THG.
Third, if he doesn’t like the nasty short sellers found in public markets, a return to private ownership may not be a picnic either. Yes, THG inhabited this world of private equity before its 500p float, but it was an era of cheap money and hard-hitting investment appetites. The life and short-term demands of private investors have changed.
Casting should count its strengths: stock market life is hectic, but it retains enormous freedom to manage the case as it sees fit. The private option might just load another layer of uncertainty onto the business.
A DIY chain puts its house in order
Depending on how you read the Q1 numbers, B&Q owner Kingfisher’s power drill is flashing or working like a charm. Welcome to the Investor Difficulty: How to gauge the current strength of consumer demand when Covid business conditions have skewed comparisons.
At B&Q itself, for example, sales were 18% lower than the same period a year ago, which seems like a lot even if one remembers the whoosh of those months because of the work-from-home factors. . On the other hand, B&Q’s like-for-like revenue was 16% higher than the equivalent last pre-Covid quarter, so there may have been some real underlying progress.
Kingfisher chief executive Thierry Garnier did his best to encourage the cheerful interpretation by describing demand as “resilient” and saying inflationary and supply chain pressures were being managed “effectively”. Specifically, it sticks to the previous profit forecast of £770m this year and added a £300m share buyback for good measure. The positive recovery of the two French activities – Castorama and Brico Dépôt – clearly contributes to this.
Shares, however, have fallen by a third since the start of this year in anticipation of the day when the cost-of-living squeeze hits kitchen and bathroom sales. At this point, say the bears, we’ll talk again about how Kingfisher is a “big box” retailer in the digital age.
It will probably take six months, at least, before a clearer picture emerges. But this can probably already be said: the group is gaining market share in most places and seems a more nimble beast now that Garnier has reversed its predecessor’s obsession with centralization. Kingfisher won’t be able to weather a storm in DIY country, but it looks like a clear winner from the pandemic.
Publishing pay ratios will not reduce the pay gap
Unfortunately, disclosure of pay ratios between FTSE 350 chief executives and their employees, as demanded by Theresa May’s government, has never been accompanied by a requirement for boards to feel shame . An undemanding explanatory “narrative” is all it takes. So it’s no surprise to see the High Pay Center predicting a widening pay gap this year.
Yet here’s a suggestion for more disclosure from Paul Lee of Redington Consultants: require big business to say what proportion of their UK workforce is paid at “real living wage”, as defined by the Living Wage Foundation. Good idea: a leaderboard would stand out and might cause more embarrassment.