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Numis reports itself to watchdog after retracting memo about THG ‘irregularities’

Written by on 17/11/2021

Numis, the London-listed investment bank, has been plunged into turmoil after retracting allegations about “irregularities in accounting” at the online beauty and nutrition retailer THG – a company it helped to float on the London Stock Exchange just over a year ago.

Sky News has learnt that Numis has reported itself to the City regulator after an employee circulated a bearish note to institutional clients last week accusing THG of “a lack of clarity” and casting doubt on the value of Ingenuity, one of the company’s three main divisions.

City sources who have seen the memo said it recommended that hundreds of clients reduce their holdings in THG and suggested that its shares were worth 21% less than they were trading at at the time of the note – despite Numis’s own research analyst suggesting that there was significant upside potential for the stock.

Matthew Moulding THG GROUP
The Hut Group
PIC: THG
Image: THG is led by Matthew Moulding Pic: THG

The original private note from Numis was circulated on 11 November.

Within 24 hours, a follow-up was sent out alluding to “misrepresentations of some of the commentary made by the team” in relation to companies including, but not restricted to, THG.

The amended version removed the reference to “irregularities in accounting” – for which people close to both companies say there is no evidence – and modified its suggestion relating to the potential trajectory of THG shares.

On 15 November, a further note was sent to Numis clients apologising for “some inaccuracies, which we attempted to clarify in a revised email to this same distribution group on 12 November at 12.37pm”.

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It went on: “The first email said with regard [to] THG that ‘there are some irregularities in accounting,’ a phrase which was removed from the second email.

“This terminology does not represent the views of Numis’ Research or the views of our Research analysts, and we would like to set the record straight that Numis has not identified, and does not believe, THG to have any accounting irregularities.”

Numis website screen grab downloaded 17/11/21
Image: Numis was part of a large syndicate which helped to float THG

It added that the bank “would like to formally retract the original email” and “publicly apologise for these inaccuracies and for any confusion caused by either our original or revised email”.

People close to the situation said it was likely that THG had instructed lawyers to contact Numis in light of the original email and the subsequent amendments.

The issue is potentially embarrassing for Numis, which was part of a large syndicate which helped to float THG last year with a £4.5bn valuation.

People familiar with the situation say that Numis did not receive a proportion of the discretionary fees awarded to bankers in relation to the IPO, which one source said was because THG executives were unhappy with the work undertaken by the bank.

THG subsequently appointed Barclays, Citi Jefferies as its corporate brokers.

One source said Numis executives and THG’s management had “fallen out” over the float.

Numis’s decision to contact the Financial Conduct Authority (FCA) about the situation underlines the seriousness with which it views it, according to another insider.

Last month, Numis was reported to have set a new target price for THG stock of 230p – roughly half the target it had in place a month earlier.

“Ingenuity is critical in many ways, but feels increasingly nascent, opaque and lacking sufficient proof points to justify a significant valuation,” analyst Simon Bowler said.

THG, which owns beauty brands such as LookFantastic and MyProtein, has endured a torrid few months on the London market, with its shares plummeting amid doubts about the revenue trajectory at its logistics arm Ingenuity and its corporate governance arrangement.

Sky News revealed last month that Matthew Moulding, THG’s executive chairman and CEO, would surrender his golden share in the company in an attempt to restore the City’s confidence.

THG also plans to move its listing to the premium segment of the London Stock Exchange next year and recruit an independent chairman.

The moves represent a bid by Mr Moulding, who is THG’s biggest shareholder with a 22% stake, to establish a more conventional governance structure after a calamitous period in which the company has lost billions of pounds of value.

Sky News also revealed that THG was planning to appoint Andreas Hansson, a senior SoftBank executive, as a non-executive director, cementing a relationship between THG and the Japanese technology investment behemoth that was unveiled in May.

Under a deal between the two sides, SoftBank invested $730m in THG’s ordinary shares and took an option – exercisable over a maximum of two years – to buy a 19.9% stake in THG Ingenuity, the division which builds and operates e-commerce sites for third-party clients such as Homebase and Revolution Beauty, for $1.6bn.

THG’s other investors ahead of its IPO included BlackRock, the world’s biggest asset manager, and KKR, the New York-listed private equity investor.

The company, which is based in Manchester, has long been lauded as one of the UK’s biggest tech success stories, although there is now intense pressure on its management to demonstrate that Ingenuity can become an engine of future earnings growth.

Since taking THG public, its executive chairman has cemented his status as one of Britain’s wealthiest people, landing a share windfall worth more than £800m late last year after hitting a number of financial targets set out in its flotation prospectus.

He already held a stake in the company worth about £1bn.

Earlier this year, Mr Moulding pledged a £100m stake in the company to a new charitable foundation, establishing him as one of Britain’s biggest individual philanthropists.

As well as the proposed Ingenuity spin-off with SoftBank, it has reiterated a plan to pursue a separate listing for its beauty division.

The company owns beauty sites such as Lookfantastic and Glossybox, and in August said it would pay about £275m to acquire Cult Beauty, a leading independent platform.

THG is also home to an online nutrition business, including MyProtein, which it says is the world’s largest sports nutrition brand.

Mr Moulding founded The Hut Group alongside John Gallemore – now its finance chief – in 2004, and it has since grown into a digital giant employing more than 10,000 people.

THG declined to comment.

A Numis spokesman said: “We can confirm a note was issued by a salesperson which contained some inaccuracies.

“We reacted swiftly by sending an amended version of the note to the same distribution list, and we have apologised publicly for our error and for any confusion caused.”

The spokesman did not comment on having reported itself to the FCA, or respond to questions about an internal compliance investigation launched by Numis in relation to THG.

 Sky News

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