Long-suffering THG investors were buoyed by news of another suitor exploring taking the beleaguered group back private, but enthusiasm was dented by heavier-than-expected annual losses just a day later.

THG shares soared 45% on Monday to 95.8p – their highest level since June 2022 – after the group announced a “highly preliminary and non-binding indicative proposal from Apollo Global Management” to acquire the entirety of the company. Despite scant details on the latest approach, the share price surge showed the market was taking it seriously.

“THG had previously attracted interest from private equity, yet this time the appetite to agree to a deal looks to be much higher,” said Neil Shah, director at Edison Group. “The weakening exchange rate has made smaller UK plcs attractive to US M&A activity.”

Last year, an approach from Belerion Capital and King Street Capital Management was rebuffed at 170p per share. Analysis from Liberum broker Wayne Brown suggested that level would still fall well short of fair value for the group on a sum-of-the-parts valuation.

Liberum put a target price of 220p on the stock, as it calculates the THG Nutrition and THG Beauty divisions alone are worth more than the entire group’s current market cap of just over £1bn, with Nutrition valued at £1.84bn and Beauty at £1.29bn. In total, the broker gave it a total group value of £3.6bn, which translates to a £3bn fair value market cap, adjusting for debt.

The likelihood of a deal took a further knock on Tuesday, when the group reported a £496m annual operating loss, as its margins were slashed by a reluctance to pass on inflationary price increases and investment in customer retention.

Group revenues for 2022 increased 2.7% to £2.24bn, but gross profit margin fell back to 41.3% from 44.7% as it sought to “shield” customers from “unusually high raw material costs”.

Meanwhile, first quarter sales were down 8.6% to £469.4m, which it said was “largely planned” as a result of prioritising higher margin sales.

GlobalData cautioned: “Although affected by tough trading conditions and being up against strong comparatives, its competitors’ online beauty sales demonstrated robust growth in the period… To better compete with Boots and other beauty players, THG may need to rethink the USPs of its platforms.”

The shares lost almost 20% on the news, falling back to 76.8p. But they regained 10.7% on Wednesday and were trading at 84.9p on Thursday. THG floated at 500p in September 2020.

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