Equity Focus: The Hut Group and its IPO

Before diving into the business model and causes for investment in the Hut Group, please note that we write our equity focus articles to provide you with an insight into a company, but also for enjoyment. They are purely educational and should not be regarded as investment advice. When considering investing in a company, thorough research is highly advisable. Also, if you aren’t sure what an IPO is, be sure to check out Charlie Warren’s article for The Student Investor here, which will give you a firm idea of what an IPO is and what the Hut Group is planning to do.

The coronavirus has impacted every aspect of life, and since the beginning of the pandemic, the IPO market has certainly not been booming. Only six companies have gone public this year in the U.K., but the Hut Group is hoping to change this by listing on the London Stock Exchange later this month.

What is the Hut Group?

Founded in 2004, The Hut Group (THG) is a Manchester based e-commerce company which employs over 7000 people. Originally, the business started with a focus on CDs and gaming, but now, THG has flourished into a one billion-pound global brand. Specialising in selling mainly beauty and nutrition products through its subsidiary companies, as well as helping other businesses grow online and owning country clubs, THG really is a diverse business looking to go public.

Valued at £2.5bn in 2017, THG’s stock market debut is hoping to obtain a strong market valuation with an equity value of £4.5bn, by selling £920m worth of new shares. According to Bloomberg, this listing will be the largest by a British company in London since Trainline PLC’s IPO in 2019. So, is the company ending the drought of British IPOs worth investing in?

Business Model

When investing in an IPO, unpacking the business model allows us to consider the company’s future prospects, and for THG, the growth opportunities seem encouraging.

THG has three main lines of income: Brands, Ingenuity, and different wellness facilities


Seen by business analysts to have an aggressive buying culture, the acquisition and then development of online enterprises is the main source of revenue for THG. For those who had never heard of THG before, I can guarantee that you will know some of its subsidiaries - a few examples include the acquisition of MyProtein, Mio Skincare, and Skinstore.

By owning numerous brands, THG has successfully centralised the manufacturing of a range of their products. They make over 50 per cent of their beauty products, and four of THG’s production sites produce 80 per cent of MyProtein products. This allows THG to exercise an impressive amount of control over their sister companies; when distributing products, creating new ones, and expanding sales to new locations, such control only aids growth and efficiency.

In terms of revenue, the process of acquiring online retailers then developing them, using their own platform, is certainly effective. MyProtein, for example, has gone from annual sales of £20m in 2011 to £380m in 2019. If THG can continue to replicate such successes, it would most likely be reflected in a strong future share price.


The aforementioned platform THG uses to develop its businesses is called Ingenuity, which has been described in THG’s annual report (available here) as an “in-house developed, proprietary, end to-end e-commerce technology and operating ecosystem.” This essentially means that the platform will guide a business from A to B when growing online – marketing tools, localisation, data feeds or website design all come under this service.

Visual representation of the Ingenuity platform

Big names use Ingenuity, including L’Oréal, No.7, Johnson & Johnson, Nestlé, Disney, and Walmart. As you can see, the client base is extremely diverse, ranging from entertainment firms to pharmaceuticals, and the fact that THG is attracting such prolific clients could encourage others to start using the service. Not being limited to any specific sector is a significant advantage, as any brand could be a potential client.

In the first three months of 2020, THG confirmed over £200m in revenue (in the pipeline) coming from brands seeking to use the platform. Not only does Ingenuity generate a strong income, it also significantly reduces THG’s exposure to financial risk. By partnering with clients and accompanying them on their online venture, rather than acquiring the business, should a brand unfortunately fail, THG won’t have to take the hit.


THG further adds to its range of revenue streams by owning hotels and spas. The focal point of the ‘experience’ sector is Hale Country Club and Spa, a luxury relaxation outlet with over 5000 members situated in Cheshire. Not only does this alternative industry help diversify THG’s business model and allow them to tap into another source of income, it also helps them further promote, grow, and sell their other products.

By having control over a wellness facility, THG opted to make Hale Country Club the focal point of MyProtein, by re-branding the gym and encouraging members to use their products. Similarly, their Looktastic product line is used throughout the spa and for beauty treatments. THG’s products and wellness services become intertwined, which increases sales opportunities and develops a loyal customer base.

Cases for Investment


Over the last 16 years, growth and performance has been more than impressive. To use Aileen Lee’s term, THG is a “true unicorn.” Starting with just a £500,000 investment, THG has grown into a global business, now operating hundreds of websites in 169 countries. As shown in the graph below, THG has consistently increased revenue year on year. Going from £1m in revenue in 2004 to £1.1bn in 2019, the growth not only underlines the strength of the e-commerce’s business model, but also potentially suggests that the company will be able to maintain a strong growth rate.

Balance Sheet

Another good place to look is the balance sheet, as it reveals the financial position of a company. Below is an image of the company balance sheet on June 30, 2020 that was submitted to Companies House. I have also condensed other stats onto an excel sheet to show the progression of their balance sheet over the last few years.

Figures in GBP

PP&E stands for property, plant, and equipment, all of which are tangible assets.

Goodwill is an intangible asset that essentially reflects the reputation of a company and the value of its brand name. For more insight into this asset, Invetstopedia covers the topic in more detail.

Overall, a pretty solid balance sheet. THG is evidently acquiring more assets year after year, including notable gains in PP&E, coming through the acquisition of country clubs; it’s positive to see that the business is not simply relying on their e-commerce activities.

Even though liabilities are also increasing by the millions, it is by no means troublesome, given they are not taking on debts that they aren’t able to pay off. Additionally, in terms of investing at an IPO, a boost in goodwill is very promising. Given we have no way of judging market sentiment, it is a positive indicator that THG has gained public confidence and faith over the last few years.

Broker THG’s Shareholders

When considering investing in an IPO, knowing the broker is essential. The stronger and more prestigious, the better. When a company is being underwritten by a very reputable investment bank, it is much more reassuring, as they are more inclined to be more selective when choosing a business to underwrite – after all, the bank is putting their capital on the line. In the case of THG, a Bloomberg article recently confirmed Goldman Sachs, Barclays, and Citigroup will be among those arranging the deal. Additionally, BlackRock, the world’s largest asset manager, currently holds 9.6 per cent of the business. With no sense of market sentiment, seeing these big names could offer some reassurance to investors. However, this is by no means guarantees a successful investment.

Future Potential

Due to coronavirus, we are now living in a new age and life online has become more important than ever. We have no idea how long the effects of the pandemic will last, and the online nature of the THG arguably cements its value to customers. Not only are people more inclined to buy products online at the moment, which will help boost sales, but the Ingenuity platform has the potential to propel THG to new heights. To survive, businesses of all sizes need to adapt and shift from physical to online stores, and the fact that THG has the tools to make such a shift frictionless, means they have a potentially infinite stream of new ventures.

Breakdown of THG's sales (annual report)

The business potential in Asia is also enormous, and it’s an area many brands are seeking to break into. THG’s annual report discusses ways it hopes to further grow in this region. One example is that they plan to make Japan MyProtein’s single biggest territory. Last year, as shown above, sales of THG’s products in Asia made up 24 per cent of total sales, an increase of 35 per cent compared to the previous year. The online nature of THG combined with the fact that they have begun tailoring products to the Asian market, for example making new protein flavours to please taste pallets, means that growth is very much achievable. And, given that Asia represents 60 per cent of the global population, should strong growth in this region be successful, it will certainly be reflected in THG’s future earnings and market value.

Other Factors to Consider

Are IPOs for you?

Possibly one of the most important things to consider, is that investing in IPOs is very risky. The lack of information may be off-putting for some; given the stock isn’t on the market yet, transparency in performance is harder to come by. Furthermore, there is no guarantee that the price will rally - sometimes stocks can continue trading at, or below, their original IPO listing price. A prime example of this is Uber. This is not to compare THG to Uber, but more to highlight that just because a well-known company is going public, it does not mean the price per share will automatically rise. Meziane Lasfer of Cass Business School firmly believes that only those who are risk lovers should invest in IPOs as the price may not be correct at first. So, it may be worth waiting to see how THG initially performs on the market before rushing to buy shares.


Specialising in online retail, it would be foolish to not consider how the industry has been impacted by the coronavirus. In the first few months of the pandemic, U.K. retail sales fell around 20 per cent, and retailers worldwide have been forced to cut staff and close stores. Naturally, THG has the advantage of being an online entity with a myriad of products, however, the impacts of the virus must still be considered. With Rishi Sunak’s furlough scheme ending next month, unemployment at an all-time high, and speculation of a tough winter ahead, will people be rushing to spend money at online retailers? Furthermore, tougher restrictions on social distancing in the U.K. and meetups recently being capped to 6 people, could have a negative impact on THG’s wellness facilities. On the other hand, should a vaccine be developed, will people want to get back out to physical stores, rather than shop online? These are all important questions to consider.


You may also want to explore past activities. This is by no means to say THG is bound to find itself in controversy, but at an IPO, it is vital to consider all available data. Should a controversy arise in the future, market sentiment may waver, thus negatively impacting share price.

Some notable instances include:

  • After acquiring a 729-space car park in Manchester, THG faced back-lash over concerns of environmental damage and risk towards those with lung-related diseases.

  • THG used to exploit a tax loophole by posting goods to shoppers from Guernsey.

  • THG sued MyProtein founder Oliver Cookson, claiming financial figures were overestimated, thus meaning they overpaid for the company. Cookson successfully counter sued and THG was ordered to pay over £7m.

  • A potential future controversy may revolve around CEO, Matthew Moulding. With reports he will bank £700m if THG reach a valuation of £7.25bn within three years. This large figure may not sit well with some during the current global situation.

Although not grave instances, these are just some examples that could suggest the type of future obstacles THG may encounter during expansion and takeovers. Deciding the extent such possible events would have on stock price is for the individual to contemplate.

Closing Remarks

THG has performed extremely well since its inception and with such a diverse business model, capitalising on opportunities online and in the luxury spa industry, the company may very well continue to be successful. And, with coronavirus continuing to disrupt our ‘normal lives,’ dependency on online retail and business development presents the ideal setting for THG to thrive.

While THG may have a strong business model and a bright future, IPOs are risky. With a lack of information compared to listed companies and a pandemic still in full swing, is investing at the IPO currently the right option? Will the price rise once the stock is listed on the market? Or, during these testing times, will investors be disappointed? What do you think? Let us know in the comments whether you think it would be better to invest in the IPO or wait until the company has been listed for a longer period of time.


The Student Investor is not a registered investment, legal or tax advisor or broker/dealer. All opinions expressed by The Student Investor are from the personal research of the author, and are written for educational purposes only. Although best efforts are made to ensure that all information is accurate and up-to-date, occasionally unintended errors and misprints may occur. Please note that the value of your investment can go up or down, and The Student Investor takes no responsibility for any decisions made by readers.