THG PLC's (LSE:THG) plan to spin off its Ingenuity digital and logistics arm will leave a simpler, profitable business with lower cash burn, Panmure Liberum analysts have said.
Capital expenditure would have been £92 million lower last year had Ingenuity not been part of the wider group, Panmure's research showed.
THG’s capital requirements, excluding the tech arm, are estimated to equate to 1.5% of its sales ahead, with free cash flow of £77 million forecast.
This would be despite payments on £650 million worth of debt set to remain with THG after the demerger, which Panmure highlighted will fall in line with interest rates.
THG unveiled the plan to sell Ingenuity in September, leaving its business consisting of beauty and nutrition arms.
“The demerger simplifies [THG], providing a simpler equity story, with a profitable, low capex, cash generative business,” Panmure said.
“It is expected that [THG] would be capable of optimising returns to shareholders instead of reinvesting profits and cash flow into Ingenuity's technology capex requirements.”
Panmure forecasts the remaining company’s equity value to sit around the £1.1 million mark, reflected in a new share price target of 83p. The City broker reiterated its ‘buy’ rating.
The shares fell 1.7% to 46.93p.