- Kelso increases its stake in online operator
- Sees ‘significant intrinsic value’ in nutrition arm
- Highlights potential MyProtein suitors
Activist investor Kelso (KLSO) has increased its stake in THG (THG) through a Contract for Difference (CFD) and set out its investment case for the consumer brands group, which has attracted takeover interest from private equity giant Apollo Global Management.
Specialist investment firm Kelso highlighted the ‘significant intrinsic value’ of THG’s nutrition business and insisted any forthcoming bid for the group as a whole ‘must clearly reflect this underlying value’, sending shares in THG 6% higher to 90p.
And if an acceptable offer fails to materialise, Kelso believes a separation of the nutrition arm including the MyProtein business should be considered.
Held through a mix of ordinary shares and CFDs, Kelso has upped its total interest in THG to 8 million shares or around 0.55% of the share capital.
WHY IS KELSO EXCITED BY THG?
Kelso says its mission is to ‘identify, engage and unlock trapped value’ in UK small cap and mid cap companies where it believes the value of the business is ‘significantly greater than its current value’.
Its investment in THG centres around the value in the nutrition business, which generated sales of roughly $800 million in the year to December 2022 and which Kelso sees as well placed to benefit from ‘the shift in consumption away from chocolate and sugar to health and nutrition’.
The activist highlighted a recent public statement by the Healthy Markets Initiative, a group of global institutional investors who are engaging with the world’s largest food manufacturers to change their strategies away from an over-reliance on sales of unhealthy foods.
Kelso said this strategic shift by the globe’s biggest food makers is ‘akin to the major oil companies diversifying into renewable energy’ and highlighted the ‘huge relevance and underlying value of THG Nutrition’.
POSSIBLE SUITORS REVEALED
The activist has identified 12 global food and beverage behemoths that arguably need to diversify away from chocolate or high sugar content products and have already begun investing in nutritional, wellness and healthier assets.
These names include Nestle (NESN:SWX), Coca-Cola (KO:NYSE), PepsiCo (PEP:NASDAQ) and Mondelez (MDLZ:NASDAQ) as well as Hershey (HSY:NYSE), General Mills (GIS:NYSE) and Mars.
Kelso also namechecked two listed pure-play global health nutrition companies, Celsius (CELH:NASDAQ) and Bellring Brands (BRBR:NYSE).
With sales of $654 million, Celsius trades on an enterprise value to sales multiple of 10.8 times while Bellring, with sales of $1.4 billion, trades on a multiple of 3.9 times.
The activist stressed that THG chief executive and founder Matthew Moulding has ‘consistently tried to explain the true value of the nutritional business. In addition, the food and beverage companies we refer to above have vast offline global distribution networks that could significantly increase the offline sales of MyProtein.’
In return, Kelso strongly believes that MyProtein’s direct to consumer digital model would be ‘highly attractive to many of these companies’.
Kelso added that any bids for THG as a whole ‘must clearly reflect this underlying value and in the event that an acceptable offer is not forthcoming then a separation of MyProtein should be considered, alongside a potential partnership and minority investment from companies such as those highlighted.’
