THG Holdings stock rises as Jefferies resumes coverage with ’buy’ rating

Investing.com -- THG Holdings ’ (LON:THG) stock gained over 2% on Monday after Jefferies resumed coverage with a "buy" rating, reflecting renewed confidence in the company’s financial prospects following the demerger of its Ingenuity division. 

Analysts at Jefferies said that the restructuring has significantly simplified THG’s investment case, allowing investors to focus on its core operations in Beauty and Nutrition, both of which have demonstrated resilience and growth potential.

The demerger of Ingenuity, THG’s e-commerce services platform, marked a turning point for the company. 

With this segment now operating independently, THG’s management has been able to concentrate on strengthening its position as a global consumer brands group. 

The company now operates with a sharper focus, leveraging its leadership in the Beauty and Nutrition markets to drive sustainable revenue growth and cash generation.

The Beauty division, which accounts for the majority of THG’s revenue, has undergone a strategic transformation in recent years. 

Jefferies analysts noted that after a challenging period in which the segment faced pressures from post-pandemic shifts in consumer behavior, the business has now stabilized. 

The division, anchored by Lookfantastic, the world’s largest pure-play online prestige beauty retailer, has successfully pivoted away from unprofitable markets, allowing it to improve EBITDA margins and return to revenue growth.

THG Beauty operates across multiple verticals, acting as both a retailer and a brand owner. In addition to selling over 1,300 brands via Lookfantastic and Cult Beauty, the company also owns and manufactures premium skincare and cosmetic brands, including Perricone MD, ESPA, and Biossance. 

Jefferies forecasts that the Beauty segment will achieve revenue growth of 7.5% in both 2025 and 2026, supported by the overall expansion of the global prestige beauty market, which is projected to grow at a similar rate. 

Additionally, the continued consumer shift toward online shopping is expected to provide a tailwind for the business.

THG’s Nutrition division, led by the Myprotein brand family, has faced significant challenges in recent years, including foreign exchange headwinds, inflationary pressures on whey protein prices, and disruptions related to a major rebranding effort in 2023. 

However, Jefferies analysts believe these obstacles have either been addressed or are set to ease in the near term, paving the way for margin recovery and renewed top-line growth.

Myprotein, which holds leading market positions in the UK and Western Europe, has expanded its reach beyond protein powders to include vitamins, vegan supplements, bars, snacks, and activewear. 

Despite recent macroeconomic pressures, Jefferies expects THG Nutrition to deliver revenue growth of 5% in 2025, accelerating to 7.5% in 2026. 

The company’s vertically integrated supply chain, combined with its strong brand recognition and expanding international footprint, positions it well for long-term profitability. 

EBITDA margins, which declined to 7.0% in 2024 due to cost pressures, are projected to rebound to 10.0% by 2026, with a longer-term target of 12%.

Jefferies analysts underscored THG’s improving financial trajectory, highlighting expectations of a 7% compound annual growth rate (CAGR) in revenue and a 20% CAGR in EBITDA over the next two years. 

The brokerage projects EBITDA to increase from £90 million in 2024 to £133 million by 2026, driven by operational efficiencies and improved profitability across both the Beauty and Nutrition divisions.

In addition to its earnings outlook, Jefferies sees THG as a compelling investment opportunity due to its attractive valuation. 

The analysts set a price target of 75p per share, reflecting a potential upside of nearly 94% from the company’s recent trading price of 38.72p.

This valuation is based on a blended comparison with peer companies in the Beauty and Nutrition sectors, applying an average free cash flow yield of 6% and an enterprise value-to-EBITDA multiple of 11x.