The Works shares jump after activist investor ups stake
Shares in The Works jumped on Monday morning after a well-known small cap activist investor upped its stake in the retailer.
The high street staple, which has more than 500 stores across the UK, had been trading with a market cap of just £20m despite turning over more than £250m annually.
According to activist investor Kelso, the arts, crafts and stationary store is “one of the most undervalued companies on the UK stock market”.
Kelso confirmed it had increased its stake in the firm from 6.6 per cent to 7 per cent, adding that it has written to the board “outlining several constructive proposals aimed at closing this clear valuation gap”.
The Works shares rose as much as 5.8 per cent to 38p in early morning trading following the announcement. The stock is up by 12 per cent since the start of the year.
Bumpy ride for The Works
A much-loved retailer, The Works has suffered a turbulent few years, with the stock down as much as 80 per cent since its 2018 IPO.
Shares reached an all-time low of 18p after pandemic lockdowns triggered store closures in 2020. Then in 2022, the retailer fell victim to a costly cyber-attack that disabled some payment systems and forced further store closures up and down the country.
More recently, the firm has shored up its balance sheet, cutting net debt from £8.5m to £5.3m and enjoying a 4 per cent on a like-for-like basis, while pre-tax losses were pared back from £6.9m £5.6m.
Kelso points out that The Works has been trading on an enterprise value to pre-tax earnings (EV/EBITDA) multiple of just 1.65x and a revenue multiple of 0.05x, below that of retailer peers “despite this continued improvement in performance, driven by strong operational management.”
Founded in 2023 by a group of City veterans, Kelso was launched to target under-valued UK small and mid cap stock market by investing in a small and focussed selection of stocks, with around 20 per cent of the company controlled by its board.
The company built a stake in retailer e-commerce firm THG in 2023, arguing that it was undervalued. THG co-founder Matt Moulding hit back, building a stake in Kelso in a “hunted turns hunter” approach.
Kelso’s declared current holdings include CVS Group, Saga, NCC Group, THG, Angling Direct and Selkirk.
Morning Wire is part of a group of companies co-owned by Moulding.