THG shares are approaching a key level of resistance at 110p. Shares have traded above this level only briefly in 2023 and investors will be gearing up for a test of this resistance level in the near term.
Whether the THG share price can break 110p will depend largely on September’s half-year results and if the company has managed to bring costs under control.
The company posted record sales of £2.2bn in 2022 but cost inflation limited Adjusted EBITDA to just £64m. Soaring administrative costs were to blame with a 14% increase in costs to £507m.
Indeed, costs will be key in the half-year report as the top line looks to be under pressure following a poor Q1. Q1 2023 group revenue fell to £469.4m, an 8% reduction from £513m in the same period a year prior.
Slower sales in the Beauty and Ingenuity units were the problem with both recording double-digit declines.
The macro-environment has not improved in Q2 and investors may be concerned the disappointing trading continues.
Investors may also be worried about THG’s valuation. THG currently trades at an EV/EBITDA ratio of 20. This is expensive compared to ASOS (7.2), Boohoo (8.7) and AO World (12.8).
For THG to fall in line with peers there needs to be a big increase in EBITDA or a sharp drop in the THG share price.
This may make THG shares unattractive above 110p.
