THG's rejected bid lays down a helpful marker

THG PLC's (LSE:THG) rejection and refusal to engage with Selkirk Group PLC (AIM:SELK) after it made a bid to acquire Myprotein for £400-£600 million was in response to what the struggling online retailer said was "media speculation".

A search on Google ahead of today's RNS would have struggled to find any such speculation, however.

Though it was there if you knew where to look, with the self-deprecating Betaville blog reporting that a £500 million bid was "rumoured" to have been made. 

Happily for THG, this offer was potentially worth more than the whole company is currently being valued by the market, which is just over £400 million at the last close. 

The offer, as one analyst put it, "puts down a marker for what the division is worth", which could be very convenient for THG.

It will not have escaped notice in the City and among investors that Selkirk is 18.1% owned by Kelso Group Holdings PLC (LSE:KLSO), which holds 6.4 million shares in THG, an investment that represents circa 25% of its portfolio, as of its latest trading update.

"THG boss Matt Moulding always made out there was hidden value in the business and no one listened… until now," said Russ Mould, head of investment at AJ Bell.

Peel Hunt, THG's house broker, put out a note pointing out that it recently valued THG Nutrition/MyProtein at £775 million, equivalent to 1.2 times revenue and 12.8x on an EV/EBITDA basis.

"In a bid situation, we would expect a significant premium to this, with recent transactions averaging 2.5x revenues, valuing the business at over £1.5 billion," it added.

It was also noted the current proposed offer for Science in Sport PLC (AIM:SIS), equivalent to around 1.5 times revenues, a multiple which would value THG’s Nutrition business at circa £950 million.

"We view this approach as speculative and significantly below fair value. We do not see Myprotein as being 'in play', although this does highlight the group’s low valuation relative to our SOTP valuation," the house broker said.

"Both THG Nutrition and Beauty are worth more than the group’s market cap, in our view."

AJ Bell's Mould said THG has been embroiled in a lot of "drama" since becoming a listed business, with its shares having collapsed 96% from the price at which Moulding managed to get the IPO away in 2021.

However, he added that he felt the company "does deserve credit for building up Myprotein into one of the leading brands in the fitness and wellness world".

He added that while THG has rejected Selkirk’s approach, "this might have fired the starting gun for other interested parties to think about making a move".