THG PLC (LSE:THG) shares fell almost 12% after a pair of cautiously optimistic statements were picked apart by investors, though analysts said once more clarity emerges today's news could be positive.
The online retailer, owner of MyProtein and CityAM newspaper, put out interim results and a separate update on its plans to sell off its Ingenuity digital logistics business and to transfer to a new category of London stock market listing.
Initially, the shares moved higher, but as Tuesday's session wore on, the shares fell into the red and spiralled back towards recent lows.
Analysts suggested the statements perhaps posed more questions than answers.
"THG does not do things simply," said analyst Wayne Brown at Panmure Liberum, saying the announcements had three main points of focus - one negative, one positive and "one with too many unknowns but potentially has significant positive upside".
"There always seems to be something holding back THG," said analyst Dan Coatsworth at AJ Bell, which this time was its Nutrition business, though growth in the other parts of the business did not overly impress.
The interims were disappointing, said Brown, as THG Nutrition's profitability "much softer than expected" and THG Beauty's growth slowing despite a favourable market backdrop.
Analyst Andrew Wade at Jefferies said with first-half EBITDA only marginally higher than last year, his prevailing £150 million estimate "now looks stretching enough", leading him to cut his forecasts to £131 million.
Wade said the lower guidance reflected greater headwinds for Nutrition from whey prices and a slower conclusion to the rebrand than anticipated.
Coatsworth seemed sceptical about THG's plans for a rebound for its nutrition arm in the second half of the year, noting that it is "an incredibly competitive marketplace", with the increasing variety of protein bars brands taking up space in supermarket aisles showing "they’ve gone mainstream and that means more big players trying to get a slice of the pie".
THG’s model, he explains, is to offer large discounts on its products bought directly from its Myprotein online platform, "sneakily presenting them as short-term offers to entice shoppers".
This "creates a disconnect between prices paid directly and those charged by external shops stocking its products" and could result in online shoppers with THG baulking at the higher cost of Myprotein items in their local shop "and end up not buying at all".
Slower growth in Beauty is another mark against the company, which comes as London-listed rival Warpaint London PLC (AIM:W7L) (Warpaint London PLC (AIM:W7L)) on the same day reports strong interim numbers showing the beauty market is doing very well.
"So it’s natural to question why THG isn’t racing ahead in this market," said Coatsworth.
FTSE index listing and Ingenuity demerger
Brown and Wade both saw the plan to transfer to the 'equity shares (commercial companies)' category of the London official list, known as ESCC, as a positive factor as it would mean the shares should be up for addition into the FTSE 250 as soon as December.
This "should drive interest from passive and tracker funds", said Brown.
The demerger of the Ingenuity would also remove a business unit that has "clouded" the PLC equity value, Brown said, which "should focus investor’s minds" on the sum of the parts, which he sees as equating to more than 120% upside.
"However, no detail has been provided on how Ingenuity, which loses significant cash every year, will be funded for the next five or so years as it scales."
THG may need therefore to provide financing via cash or debt recourse, but Brown said is "potentially very good news but we can’t form a full view until financing questions are answered".
Wade said the demerger of Ingenuity is "a potentially very interesting development that could leave a listed business consisting of two high quality, strategically relevant, cash generative assets in Beauty and Nutrition.
"Clearly the relative capital structures would be an important consideration, but we see this as potentially unlocking considerable value for investors in the standalone ecommerce operations", he said, adding that the ESCC category transfer "should encourage demand and liquidity".
On Ingenuity, he noted that is had been touted as big opportunity for THG when it first joined the stock market, and was once valued by SoftBank at $6.3 billion for its ability to offer third parties a platform to sell products online and handle all order and fulfilment.
"It hasn’t quite lived up to the initial lofty expectations and so THG might set it free," he said, with the question of whether either business is worth significantly more as a standalone entity offering "plenty of unknowns".
"THG’s miserable share price chart over the past five years would imply there may not be a big queue to own Ingenuity as a standalone entity and being sold to a private equity player with deep pockets seems a more logical route," he concluded.