E-Commerce Boom Propels THG, Allegro to Europe’s Benchmark Index


Two of Europe’s most successful initial public offerings of 2020 will be added to the region’s benchmark equity index today, the latest sign of the growing importance of e-commerce stocks for investors.

Britain’s THG Holdings Plc and Poland’s Allegro.eu SA will both gain entry to the Stoxx 600 Index as part of wider changes to the gauge, meaning passive investors who track the benchmark will need to bolster their holdings of two stocks that are already in limited supply.

Index membership helps validate the view of investors who have been focusing on the growth of e-commerce firms during the Covid-19 pandemic, while at the same time betting on their potential to enter major stock gauges. Both shares have soared above their IPO prices, with Allegro about doubling and THG gaining around a third.

“Online has been a big winner this year as a result of the pandemic and the addition of e-commerce stocks rebalances the index to reflect that growth,” Bernstein analyst Aneesha Sherman said by phone. “THG is a unique business model that includes retail, brands and B2B technology, while Allegro is more of a typical third-party platform like Zalando.”

The companies declined to comment on their Stoxx 600 entry.

The following charts show how the companies line up against each other:

E-Commerce Boom Propels THG, Allegro to Europe’s Benchmark Index

A scarcity of publicly listed technology companies in the region has made e-commerce stocks more attractive to investors. Both THG and Allegro raised more than $2 billion in their IPOs, making them the biggest such offerings in Europe this year after Dutch coffee company JDE Peet’s BV. Allegro’s market value of 88.1 billion zloty ($24 billion) is similar to German fast-fashion retailer Zalando SE, which is already in the Stoxx 600.

“Allegro benefited much from investors’ focus on e-commerce stocks and bets that the company will join major indexes,” Konrad Grygo, an analyst at Erste Group Bank, said in an email.

THG, which sells beauty and nutrition products online, has a market value of about 6.6 billion pounds ($8.9 billion), making it bigger than retailers such as B&Q owner Kingfisher Plc and budget homeware seller B&M European Value Retail SA, which are both in the U.K.’s FTSE 100 Index. THG isn’t eligible for inclusion in the FTSE 100 because with multiple classes of shares it doesn’t meet the corporate governance standards needed for a premium listing on the London Stock Exchange.

E-Commerce Boom Propels THG, Allegro to Europe’s Benchmark Index

The popularity of e-commerce stocks has pushed their valuations well above brick-and-mortar retailers, which have had to close stores during the pandemic. Some investors consider THG, previously known as The Hut Group Ltd., more of a tech offering because of the technology platform through which it offers online commerce services to other consumer-goods companies.

A stock such as THG “is a very rare commodity in the U.K., it attracts a lot of interest and it ends up trading on a very high rating,” Colin Morton, a portfolio manager at Franklin Templeton Investments, said in an interview.

Using a ratio of enterprise value to estimated sales, a metric often employed to value high-growth companies, Allegro has a much richer valuation than THG with a multiple of 19.4 times, according to data compiled by Bloomberg. The premium may reflect lower online penetration in Poland’s fast-growing retail market compared with Western Europe. Even so, Allegro looks expensive compared with peers including Amazon.com Inc., Zalando and Farfetch Ltd., according to Barclays analysts.

E-Commerce Boom Propels THG, Allegro to Europe’s Benchmark Index

Analysts see THG shares having further to rise compared with Allegro. THG’s average 12-month price target is 20% above Friday’s close, while Allegro’s is 0.1% lower, according to data compiled by Bloomberg.

Analysts are also overwhelmingly bullish on THG, with 10 of the 11 analysts tracked by Bloomberg rating the stock a buy or equivalent. None of the analysts have a sell recommendation and only Numis Securities has a hold. THG’s consensus rating -- a proxy for the ratio of buy, hold, and sell ratings -- of 4.82 is higher than any other retailer in the Stoxx 600 Index.

Meanwhile, Allegro has a consensus rating of 3.14. The stock has 4 buy recommendations, 7 holds and 3 sells, according to Bloomberg data. The probability of increased competition from Amazon has weighed on the shares lately, although according to Goldman Sachs analysts there’s plenty of room for several e-commerce players to grow in Poland.

E-Commerce Boom Propels THG, Allegro to Europe’s Benchmark Index

Seven investors own more than two thirds of THG’s shares, according to data compiled by Bloomberg. Founder Matthew Moulding, who is both chairman and chief executive officer, owns shares through the investment vehicle FIC Shareco Ltd., according to the company’s prospectus.

Moulding has pledged 42.6 million shares as security against a loan as part of an agreement between FIC Shareco and Barclays Bank Plc, according to a Sept. 24 filing that still applies now. He also has a special share that gives him power to veto any hostile takeover attempt until September 2023, a defense he has deemed necessary after receiving unwanted takeover advances in the past.

For Allegro, its original private equity investors -- Cinven, Permira and Mid Europa Partners’ funds -- remain the controlling shareholders, owning about 70% of the shares, according to Bloomberg data.

©2020 Bloomberg L.P.

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