THG share price could plummet to 40p after ending Apollo deal

THG (LON: THG) share price plunged by over 12% on Friday after the company ended acquisition talks with Apollo Global Management. The shares retreated to a low of 55.80p on Friday, the lowest point since March 23. In all, the stock has retreated by more than 44% from the year-to-date high.

In an articleI did a while ago, I wrote that Apollo Global had submitted a bid for The Hut Group. The acquisition was seen as a good exit strategy for a company that has been in trouble since going public a few years ago. 

In a statement on Friday, THG announced that it had rejected the offer, noting that it had severely undervalued the company. The statement said:

“Consideration and rejection of the indicative proposal has been on a basis consistent with all previous offers for the company, some a matter of public record, which were also rejected based on inadequate valuations and the nature of those offer structures.”

Therefore, there are concerns about whether THG will continue operating as a going concern  in the long term. For one, the stock is about 91% below the highest level on record. At the same time, its main brands like Lookfantastic and MyProtein are facing substantial competition in key markets.

The most recent annual report shows that the company’s annual revenue jumped to £2.3 billion in 2022 while the adjusted EBITDA dropped from £161.3 million to £64.1 million.

The daily chart shows that The Hut Group share price has made a bearish breakout in the past few days. It has moved below the key support at 80p, the highest point on November 11 last year. It has crossed the 25-day and 50-day exponential moving averages (EMA). 

The MACD line and the signal lines have made a bearish crossover while the Relative Strength Index (RSI) has moved below the neutral point at 50. Therefore, the shares will likely continue falling unless another bidder comes up. The next target will be at 40.57p, the lowest point on December 29.