Barclays has repeated a bullish view on THG PLC (LON:THG) following this week’s equity funding and collaboration deal with SoftBank.
Analysts at the bank ‘tweaks’ its price target to 890p, suggesting some 40% upside to the current market price of 621p and keeps an ‘overweight’ rating for the London-listed e-commerce share.
The newsflow is positive for three reasons according to Barclays - 1) it ‘validates the entire premise of Ingenuity 2) the SoftBank deal has the potential to accelerate Ingenuity’s client base with commercial deals and 3) it sets the stage for value realisation through future IPOs.
On Monday, the company said it would raise US$1.05bn of new capital through a share placing and a parallel subscription deal with SoftBank Group, which is separately pledging up to US$1.6bn for a stake in the Manchester firm’s technology business.
SoftBank is subscribing for US$730mln THG shares via a subscription for 86.6mln new shares issued at 596p, to raise US$730mln. The new THG equity issued in the placing and subscription equates to around 9.98% of the company’s enlarged share capital.
THG earmarks the new capital as an acquisitions war chest to seize opportunities in the wake of the pandemic and to expedite its digital-first retail operation, particularly in the ‘prestige beauty’ area. To that end, it concurrently announced a US$255mln deal to acquire Bentley Laboratories LLC, a New Jersey based developer and manufacturer of skincare and haircare products.
The deal with SoftBank includes a collaboration agreement for the THG Ingenuity business and an option to invest US$1.6bn into the Ingenuity unit which is being separated into a new subsidiary.
THG Ingenuity is the ‘direct-to-consumer’ e-commerce technology that lies beneath the group’s basket of growing retail websites. The new subsidiary will comprise the company’s Ingenuity platform IP and the Ingenuity operating trade and assets.
SoftBank will own 19.9% of the unit through the collaboration deal, if the option is exercised, which would give the newly separated entity an enterprise value of US$6.3bn.
In Monday’s statement, THG said it retains the discretion to separate THG Ingenuity by way of an IPO, sale process, or other structural options.