MyProtein's parent company, THG, sees stock soar due to return to revenue growth
In the second quarter of 2023, THG, the London-listed firm behind fitness supplement brand Myprotein, reported a mixed performance. While the Nutrition division is experiencing strong revenue growth, the Beauty division is facing cost pressures.
THG's Nutrition division is expected to see a significant increase in revenue, with growth of 10-12% predicted for the second half of 2025. This growth is largely driven by the Myprotein brand, which is moderating price increases to further accelerate sales. However, rising protein raw material costs are weighing on profits, leading the company to absorb costs in the short term but impacting margins.
On the other hand, the Beauty division, which includes brands like Cult Beauty and Lookfantastic, is facing cost pressures due to inflation and increased regulatory demands on sustainability, transparency, and ethical sourcing.
Despite these challenges, THG is showing positive revenue growth prospects in both Nutrition and Beauty, benefiting from e-commerce acceleration and data-personalized marketing strategies. However, the company is not expected to return to profitability within the next three years due to margin pressures and rising costs.
The demerger of Ingenuity, which was completed at the beginning of January, has had a positive impact on THG's operational focus, cost efficiency, and capital structure. This is supporting EBITDA margin improvement and a strengthened capital structure with reduced leverage and better liquidity to 2029, providing financial flexibility for investment and potential margin expansion.
Shares of THG rose by over 10% in early trading following the news. Analysts at Peel Hunt reiterated a Buy rating for THG stock, reflecting their confidence in the company's growth prospects.
Despite the challenges in the Beauty division, THG is moving towards vertically integrated models and own-brand development in both divisions, aiming to enhance margins and customer loyalty over time. The company is also showing resilience in the face of record whey commodity pricing that placed temporary pressure on Nutrition margins.
THG is on track to meet full-year expectations, according to analysts. The company is expected to report a decline of two to three per cent in the second quarter, an improvement of 9.8% compared to the first quarter. The Nutrition arm's revenue growth is an increase of 0.1% from the first three months of the year, and the Nutrition arm's revenue is expected to grow five to seven per cent in the second quarter. Online customers are back in growth, with ASP also growing.
In conclusion, THG's Nutrition division is showing strong double-digit revenue growth, but with margin pressure from raw material inflation. The Beauty division is facing cost and regulatory pressure but is focusing on premium segments and operational efficiency. Overall, THG is expected to continue revenue growth supported by e-commerce trends, but profitability is not forecast within the next three years. The demerger has had a positive impact on THG's operational focus, cost efficiency, and capital structure, supporting margin improvements and investment capacity.
Technology plays a crucial role in THG's growth strategies, with data-personalized marketing and vertically integrated models being key components. The company's Nutrition division, powered by technology, is experiencing strong revenue growth, expected to increase by 10-12% in the second half of 2025.
Despite the cost pressures faced by the Beauty division, THG is leveraging technology to improve operational efficiency and enhance margins in both divisions, aiming to boost customer loyalty over time.
