Hut Group floats to the top despite IPO questions

Shares in the Hut Group performed strongly in the first day of trading on Wednesday despite questions raised over the way the company is governed.

The company behind MyProtein, Lookfantastic and ESPA notched up a multibillion-pound valuation, and its shares jumped in value as investors started selling them on the market.

The online retailer tapped into a market which is looking for alternatives to traditional brick-and-mortar stores which have suffered since the start of the pandemic.

On Tuesday, online supermarket Ocado saw its shares soar, pushing its £19.6 billion valuation closer to Tesco’s £21.5 billion, and more than twice the value of Morrisons, Sainsbury’s and Marks And Spencer combined.

Now even newly-listed Hut Group has overtaken the value of these big high-street names. Its float price on Wednesday valued the business at 500p per share, or £5.4 billion, around £1.2 billion more than both Morrisons and Sainsbury’s.

It is also ahead of the initial target of £4.5 billion that bosses spoke of earlier this month.

As shares opened much higher, at 608p, investors seem to have shrugged off concerns over the way that the Hut Group has structured itself that were floating around ahead of the initial public offering (IPO).

Founder Matthew Moulding will be joint chairman and chief executive and has so-called founders shares, which allow him to remain in control of the business for another three years. He is also eligible for massive payouts if certain targets are reached.

The unusual structure has meant that the Hut Group will not qualify to enter the FTSE 100 index of the biggest listed companies in London.

CMC Markets analyst Michael Hewson said that questions will also be raised by the decision of KKR, the private equity giant which is also Hut’s biggest shareholder, to sell off all their shares as part of the IPO.

Regardless, the sale now leaves managers holding onto £920 million which will be used to get the company’s ballooning debt under control.

Between the end of 2018 and the end of 2019, net debt rose by nearly three quarters to more than half a billion pounds.

It is also growing heavily – revenue was up by a quarter last year to £1.1 billion, while the company is also showing positive earnings before interest, tax, depreciation and amortisation (Ebitda).

Like Ocado, it is not only the company’s own sales that matter. Hut Group supplies software and logistics to massive names such as Nestle and Johnson & Johnson, allowing them to sell their products directly to customers.

“As the biggest IPO since Royal Mail was launched back in 2013 The Hut Group will be closely scrutinised in terms of not only early demand, but also the sustainability of the business model,” Mr Hewson said.

“Time will tell as to whether the valuation is a solid one, or whether KKR has made the right move in selling out of their entire stake.”