The Hut Group (THG) share price yesterday plunged by almost 35%, with an additional 2.5% shed today, in the wake of a key investor presentation delivered by co-founder and chief executive Matt Moulding. The presentation was intended to sooth investor nerves after recent declines in the company’s valuation and a build-up of short positions taken against it. However, it ultimately backfired with a sell-off immediately following the presentation wiping £1.9 billion off THG’s market capitalisation.
The focus of the online presentation, said Moulding as he embarked upon it, was to explain why scepticism over the valuation of the company’s Ingenuity platform, which it licenses to other e-commerce companies, was unfounded. He clearly failed to bolster investor confidence as intended as the THG share price crashed 34.75% over the rest of the day.
The company’s share price is now over 45% less than its 500p listing level 13 months ago and 54% below May highs when Softbank bought in as an investor at 569p-a-share.
As part of that deal, SoftBank agreed to an option to acquire 19.9% of Ingenuity, if and when it is spun out of THG as a stand-alone company, at a valuation of £4.5 billion. The entire company is currently only worth £3.9 billion. Analysts currently believe the deal will now inevitably be renegotiated by SoftBank if it is to go ahead.
Yesterday’s share price plunge was exacerbated by a growing number of hedge funds shorting the e-commerce group’s stock. Swiss-based hedge fund PSquared, which has recently also done well out of online fast fashion retailer Boohoo’s falling valuation, took a short position in August by borrowing 1.01% of THG’s stock. That means, including yesterday’s fall, it has made a profit of £43.2 million on The Hut Group’s plunging valuation.
There is a feeling in some quarters that investors in London-listed companies still “don’t get” high growth digital economy companies in the same way as peers investing in comparable companies listed on Wall Street’s major exchanges. Moulding yesterday commented THG had “a lot of work to do educating investors and others”.
Analysts commented that the two-hour online presentation on Ingenuity’s business model and market intended to give investors more clarity in fact communicated a lack of transparency around how the business charges other divisions of THG and third-party clients.
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