THG PLC (LSE:THG) shares were downgraded by broker Panmure Liberum as the company's discounted refinancing reflects its "weak bargaining position".
THG yesterday proposed a refinancing and part repayment of its gross debt pile of £620 million, extending the maturity to 2029 and reducing debt by circa £190 million.
"The current macro environment and the growth slowdown and low profitability of the business has also led to a need for more equity to support the refinancing," analysts at the broker said.
THG said it was looking to raise between £60 million and £91.2 million via an equity raise and a convertible loan, having recently raised £95 million for the demerger of its Ingenuity arm.
CEO Matt Moulding has committed to funding £60 million of it.
"While highly dilutive for non-participating shareholders (potentially between 13.5% to 20.5% new shares including the convertible), it could save the business up to £15 million in interest costs," the analysts said.
On Panmure's 2025 forecasts, THG's free cash flow yield will improve to circa 7.5%, which the analysts think "represents fair value" and hence the downgrade to 'hold' from 'buy'.
The group’s recent struggles "have made us question if it has sustainable competitive advantages in tough nutrition and beauty retail categories where we would like to see further evidence of improved momentum", they added, noting that post fundraise, debt and leverage levels still remain "very high".