THG - Am I buying a cardboard hut and about to lose my shirt?
The Hut Group is probably a case study in the "things gone wrong" category at MBA schools. But maybe I've discovered hidden diamonds under the shack?
Bought in Jun25 at 23.7p, a medium sized position (5-10%) of portfolio.
The first rule of writing is make sure to write what people want to read. I reckon this post on THG #THG $THG.L will have the lowest engagement out of all my 48 posts so far, as this share is like Marmite. For good reason, looking at the share price performance since IPO:
I don’t blame those that have completely barge-poled THG due to its abysmal performance. I do the same with many other shares that have lost more than 95% of value - the crap companies that is the muck at the bottom of the barrel. The blue-sky stocks that have no viable business model. The scams. The pre-revenue companies. But does THG really belong here at the bottom of the barrel?
If you look at the list of online eCommerce brands that they own, and their traffic (taken as a proxy for market share in the UK):
LookFantastic - #1 traffic in Beauty & Cosmetics (Similarweb)
Cultbeauty - #5 in Beauty & Cosmetics (Similarweb)
MyProtein - #1 traffic in Nutrition, Diets, and Fitness (NDF) (Similarweb)
So THG have the #1 sites in two big categories in the UK. And both brands also do substantial sales overseas too; more than 50% of group sales are non-UK.
The enterprise value (EV) of THG is just under £600m. Sales in FY Dec24 (continuing operations) of £1.7bn. That gives an EV/Sales multiple of just 0.35x which sounds a massive bargain for what should be decent margin industries of Beauty, NFD, and eCommerce.
So this is what got me starting to dig into THG…..
THG deserves deserved to be a laughing stock
The share price says it all. Its been a diabolical disaster since 2021. They went too aggressive for growth, burnt through loads of cash. They had a division called Ingenuity, which was meant to commercialise their end to end eCommerce stack and offer “eCommerce-as-a-service” to other companies. It failed spectacularly to generate any sort of financial return.
It has been a favourite share in the investment community to ridicule and laugh about. Similar to Boohoo #BOO $BOO.L and Asos #ASOS $ASOS.L. The trio of spectacular online pure-play eCommerce failures in recent years.
THG is saddled with £205m of net debt. Growth last year slowed to a halt (-2.5% Sales YoY). Adj EBITDA margin is a mediocre 5.4%.
Yet…. the THG today, is so different to the one a year ago. But for many investors that long ago gave up on THG…. the transformations, and their implications, might not have been noticed yet.
THG should rename themselves
Because it really is a different company from the one a year ago.
The key changes are:
#1 Jettisoned the Ingenuity part of the business, which was heavily cash burning and capex heavy, and likely to be loss-making for several more years to come.
#2 Massive rebranding of the MyProtein brand, which resulted in commercial havoc last year, as old inventory with the old branding needed to be cleared, empty shelves in some product lines, etc. Nutrition revenues contracted -11% in FY24.
#3 £300m of lease liabilities shifted with Ingenuity - which really helps the balance sheet for THG. Especially when you look at this number compared to the £380m market cap it is currently.
#4 Net Debt / EBITDA ratio has decreased to 2.2x from 3.2x - from the two fundraisings. 3x is danger zone, 2x is uncomfortable. And don’t forget - EBITDA was depressed last year from the declining MyProtein sales, due to the rebranding (#2) but that is a temporary effect.
#5 MyProtein also hit by one-off external factors - spike in whey protein prices and a rapidly weakening Japanese yen had a major impact on MyProtein. However, these look one-off to me. Both headwinds will turn into margin improvement tailwinds this year.
So the situation of THG is really different now.
FY24 EBITDA margin was a very 5.4%. I reckon this should easily recover to the 7-8% range, and there’s no reason why it can’t get to 9-10%. The Nutrition division (aka MyProtein) has done 13-15% before, and the Beauty Division has done 6-8% before.
MyProtein set to drive a strong recovery in profitability
I believe that MyProtein could be worth more than £1bn EV on its own, within a year or two. Its FY24 revenues were only £580m and £34m divisional EBITDA, so definitely still far off that valuation. But here I lay out the case of why it can rapidly improve within the next 24 months:
#1 Rebranding now complete. Remember, the rebranding roll-out chaos led to a -11% YoY revenue decline and -54% in divisional EBITDA decline in 2024. The rebranding is now complete. Q1 revenues recovered to +0.1% YoY. There is positive momentum, rapidly improving.
#2 Diversification to offline. Over the past two years, THG has been busy signing new distribution through offline sales channels: major chains such as Boots, Holland & Barratt, and WH Smith. As well as launching licensed products with Muller Dairy and Iceland Foods. This side of the business will be a growth engine for years to come, as well as provide a conveyor belt of new customers to the D2C online sales channel.
#3 Whey prices to come down, Japan manufacturing now live. The company said this in Apr24: “new global volumes of high-concentrate whey protein entered the market during the first quarter, supporting a more normalised commodity market outlook”. The Japan manufacturing facility went live in H2-24, providing a hedge against FX moves.
#4 Protein demand is strong and growing - you only have to look around the supermarket shelves, and even in some restaurants these days, to see an explosion of “high protein” products. In gyms, cardio is out, weightlifting is in vogue. Women are leading the growth in strength training. Protein shakes and protein products are going to see a surge in demand off the back of this.
It is #4 that really excites me, as it can be THE growth driver for many years to come. I get the sense that this secular growth trend hasn’t hit the investment news yet, so still under the radar with many investors. Just look at this Google Trends chart for the [Strength training] keyword.
Brand search volume for MyProtein, globally, are also growing YoY, which backs up points #1, #2, and #4 are working, and we should start to see this flow through the H1-25, H2-25 revenue numbers.
Just look at the chart below. Since February, there is clear sky opening up between 2025 vs 2024, in search volumes for MyProtein globally. Last year (2024) had negative to zero growth.
And MyProtein sits right at the heart of this shift from Cardio to Strength. Going back to Similarweb, this a list of the top sites, globally, for the Nutrition Diet and Fitness category.
MyProtein is at number 8. The first 7 sites, none of them sell protein products.
Valuation time!
So I’ve now made a strong case for MyProtein, and why I think it can be the key driver for a re-rating of THG shares. I am going to quickly mention Beauty, the other division that is 65% of Group revenues, delivering £80m divisional adj EBITDA (7.2% margin). I think it is in a mature growth phase, but a dominant player (the #1 traffic position in the UK), so will probably drive modest single-digit growth in revenues and EBITDA over the next few years. Lets say they can get EBITDA another +10% over 24 months, so £88m in total.
In MyProtein, I think growth here could be at least 20% total over the next 24 months, given the drivers listed above. That would be £700m revenues. Margins should recover to long-term trends, which have reached 13%+ before, but I will take 10% to be conservative here. So a £70m divisional EBITDA.
So we have a total divisional EBITDA of £158m. I estimate £30m of central costs to take off, so Group EBITDA of £128m. Given their profitable nature, low capex requirements going forwards, and dominant market positions, an 7x EBITDA would be a bargain here, and that implies a £896m EV. Which would imply a 62p target share price, from the current 26p. And this is taking a conservative 7x, and also conservative 10% margin for MyProtein.
So hence why I think this can easily +50% or more, within a 12 month timeframe, when the growth momentum starts to come through in the H1-25, H2-25 numbers. And +100% share price within 24 months.
There is also another valuation data point available. There was a half-serious bid approach earlier this year from Selkirk, valuing MyProtein at a £400-600m EV. Given that MyProtein was only 30% of the total EBITDA in FY24, that implies a £1.3bn to £2bn EV for the whole group, in a very simple extrapolation. Even if you chop that by half - £650m-£1bn EV - the bottom of that range is STILL higher than the current £600m EV.
The current share price is also much lower than recent fundraising rounds, at 49p in Oct24 and 32.5p more recently in Mar25. So there is already a discount to what institutional investors were willing to pay recently.
Red flags, my conclusion
There are still some red flags here. Short interest in THG has been increasing in the last few months, which is worrying. And not just the total amount of short interest, but the number of institutions (six), is worrying.
Matt Moulding is still CEO, despite presiding over a car crash of strategy in the past few years. He may be the founder, but maybe he’s just not the right person to lead THG now that the brands have grown up and matured? Why did he have plenty of free time recently to conduct a pubic spat with an ex-CEO on social media?
Normally, these two ref flags would make me wait and watch, until the shorts clear and I have more confidence in management. However, I feel that next week’s AGM trading update will start to show some progress with growth and profitability.
In addition, I do think industry players, globally, must be circling MyProtein, as it is a crown jewel in the NDF industry that will see secular growth riding on the coat-tails of strength training trends. Nick Candy was circling THG in 2022, and Apollo in 2023, so there is clearly something of value here. I’d cry into my porridge if I held out for a few more pence of lower share prices, only to miss out on a major takeover premium.
So I am now in at just below 24p, and think this can easily get over 40p within a year, and with a good chance of 60p within 24 months.
I hope you enjoyed reading this as much as I enjoyed writing it!
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Many Thanks for your article, very informative as usual and makes a good case but off my risk appetite scale for now! I will add it to my watchlist. Thanks
Hi Boon. Great analysis and encouraged me to put this back on my watch list. There is a post about THG on Stocko Trade / Charts ideas thread which was looking at the trading setup and asked the question about potential catalysts.
I’ve linked your article in the thread with a recommendation to read it. This has generated a small discussion that may be worth checking out.