AIM-listed investment bank Numis has apologised and handed itself in to the City watchdog, after one of its employees circulated a bold memo suggesting that ecommerce group THG had “irregularities in accounting”.
Numis, a bookrunner on THG’s IPO just over a year ago, has found itself in a sticky situation after the memo to hundreds of institutional clients went a step too far last week and accused THG of “a lack of clarity”.
Alongside the murky allegations, a bearish Numis employee questioned the value of THG’s controversial Ingenuity arm – already a topic of concern among shareholders – and recommended that those in receipt of the memo reduced their stakes in the group.
Despite the investment bank’s own research that suggested there was substantial upside potential for THG stock, the memo in question also implied the group’s shares were worth 21 per cent less than their trading price at the time it was written, city sources told Sky, who first reported the news.
Within 24 hours of the original private note to clients on 11 November, the broker sent a follow-up memo that suggested “misrepresentations of some of the commentary made by the team” and removed the mention of “irregularities in accounting”.
A few days later, on 15 November, Numis sent its clients an additional note that apologised for “some inaccuracies, which we attempted to clarify in a revised email to this same distribution group on 12 November at 12.37pm”.
“The first email said with regard [to] THG that ‘there are some irregularities in accounting,’ a phrase which was removed from the second email,” the note said.
“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 “formally retracted” the claims in the original memo, and has reportedly turned to the FCA – a move that demonstrates the gravity of the situation, in the broker’s eyes.
It comes after Numis had already taken a tough stance on the group, which has had a tumultuous few weeks, in separate analyses leading up to the memo.
Last month, analyst Simon Bowler had the lowest target for the group at 230p, and was the only investment bank analyst with a negative recommendation on the company.
“The strong order book is encouraging but fails to offset the worsening momentum and worsening cash profile of the core businesses,” Bowler said.
At the time, he also took aim at the group’s Ingenuity arm, its white label business that builds e-commerce platforms for consumer goods groups, echoing investor doubts over the lack of transparency around its profitability.
“Ingenuity is critical in many ways, but feels increasingly nascent, opaque and lacking sufficient proof points to justify a significant valuation,” Bowler said.
A spokesperson for Numis told City AM: “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.”
Numis was part of a syndicate that led THG to its IPO last year. Barclays, Jefferies and Citi are joint house brokers.
THG itself has been having a rocky ride the past few weeks after a series of events that painted its governance, valuation, and founder Matthew Moulding in an unflattering light.
Shares in the group plummeted to a record low of 198p a fortnight ago after its largest institutional shareholder Blackrock sold half of its stake.
Blackrock sold 58m shares in THG at a price of 195p each, valuing the deal at £113.1m, according to its bookrunner Goldman Sachs. This represented a 10.3 per cent discount on the closing share price a day before the move.
It also marked a significant drop from its 500p a share price at IPO in September last year, and the subsequent rally the group enjoyed that pushed its stock up to almost 800p.