Shares in THG surged 13% to 31.04p on Thursday after the e-commerce group raised its full-year profit guidance and analysts at Peel Hunt pointed to a potentially more significant tailwind from falling commodity costs.
Peel Hunt, which has a buy recommendation and a price target of 80p on the stock, left its own earnings forecast of £105 million unchanged but said consensus estimates at the lower end of the range look set to rise following management's upgrade to guidance of £103 million.
The broker said the fall in whey protein commodity prices, the key raw material for THG's Myprotein supplements brand, could prove a more significant driver of earnings than current forecasts suggest.
The benchmark WPC80 whey index has fallen around 20% since THG's interim results in September, with fourth-quarter purchases contracted below third-quarter prices and 2027 supply now being secured below prevailing market rates.
Peel Hunt said its forecast for a Nutrition earnings margin of 9.3% in the 2027 financial year would look conservative if lower whey prices are sustained.
The broker attributed the decline to a combination of increased supply and product reformulation reducing demand for commodity whey, while noting that consumer appetite for protein products remains strong.
THG's Nutrition division delivered revenue growth of 5.3% at constant exchange rates in the third quarter, or 10.8% excluding Asia against a tough comparative.
Beauty revenues fell 0.6%, affected by the timing of advent calendar dispatches and business-to-business orders, though core brands and markets grew 4.5% once those timing effects are stripped out.
New licensing partnerships, including Jaffa Cake, Caffè Nero, Gold's Gym and Krispy Kreme, are accelerating, the broker noted.
Peel Hunt said the shares, trading at 5.8 times enterprise value to EBITDA, materially undervalue both of THG's main business units.
