THG (LSE: THG) doubles first-half EBITDA, but EU tariff shock puts the recovery under pressure

THG PLC (LSE: THG) reported a 109% increase in first-half adjusted EBITDA to £42.8 million on September 10, driven by stronger THG Nutrition performance and pricing actions taken to offset higher commodity costs. Yet the headline profit improvement came with an immediate complication: management expects third-quarter revenue growth to slow to approximately 2% after European Union customs changes hit its beauty operations and unusually hot European weather weighed on consumer demand.

THG expects growth to reaccelerate to approximately 6% to 7% in the fourth quarter and retained its full-year outlook in line with market expectations. The shares entered the results at about 31.7p after declining 3.2% on September 9, leaving a market capitalisation around £500 million and the stock materially below its 52-week high above 52p.

The investor question is therefore unusually clean. THG’s underlying profitability appears to be recovering, particularly at Myprotein, but external trade-policy changes have created another obstacle for a company whose equity story has repeatedly been complicated by restructuring, margins and execution.

How impressive is THG’s 109% first-half EBITDA increase?

Moving adjusted EBITDA to £42.8 million represents a little more than a doubling on a like-for-like basis. The improvement was helped by THG Nutrition, where Myprotein benefited from stronger sales and price increases used to compensate for elevated input costs.

Pricing is important because nutrition products are exposed to commodity costs that can move rapidly. Successfully passing some inflation through to consumers protects gross profit, but aggressive price increases can eventually damage volumes. Investors should therefore watch whether Myprotein continues growing after pricing comparisons become more difficult.

The EBITDA increase also matters because THG’s equity value is only around £500 million. £42.8 million of adjusted EBITDA in six months is economically meaningful against that market capitalisation, although investors cannot simply annualise the first-half number because seasonal trading and second-half cost dynamics differ.

The market has historically discounted THG partly because reported revenue scale did not consistently translate into attractive cash returns. A durable improvement in adjusted EBITDA and free cash flow could therefore change the valuation narrative more meaningfully than another period of top-line growth alone.

What exactly is the European Union tariff problem hitting THG Beauty?

In July, the European Union removed the €150 de minimis customs-duty exemption and introduced a flat €3 charge per item category for qualifying low-value shipments. THG said the change is weighing particularly on its beauty division, which includes platforms such as Lookfantastic and Cult Beauty.

The immediate impact is partly a timing issue. THG expects some own-brand beauty revenue to shift into the fourth quarter or 2027 rather than disappear permanently. Management therefore regards the effect as largely temporary and expects Q4 revenue growth to recover to 6% to 7%.

Investors should nevertheless treat the customs change as more than accounting noise. Cross-border e-commerce economics depend heavily on shipping costs, fulfilment efficiency and tariff treatment. Even relatively small per-item charges can change the economics of low-value orders or force retailers to adjust fulfilment models.

The next several quarters will show whether THG can mitigate the change through pricing, inventory positioning and logistics adjustments without hurting consumer demand.

Why is Myprotein becoming increasingly important to the THG investment case?

THG Nutrition gives the group exposure to a global sports-nutrition market where Myprotein already has substantial brand awareness. Unlike THG Beauty, which carries significant third-party merchandise alongside owned brands, Myprotein provides greater direct control over product development, pricing and customer relationships.

That distinction can create better economics if the brand scales efficiently. The first-half EBITDA improvement suggests nutrition is currently carrying more of the recovery burden, particularly while beauty absorbs European customs disruption.

However, nutrition is not immune to risk. Whey protein and other ingredients are commodity-sensitive, while consumers can trade down if prices rise too quickly. THG’s recent pricing actions need to preserve both margins and volumes for the improvement to prove durable.

Is THG cheap because it is undervalued, or because investors still distrust the recovery?

At roughly 31.7p before the first-half results, THG remained around 40% below its 52-week high near 52.55p. It is also dramatically below the levels reached after the company’s 2020 initial public offering, illustrating how much shareholder confidence was destroyed during the subsequent years.

A low share price compared with historical levels does not automatically mean a stock is inexpensive. The important question is what sustainable earnings and cash flow the current business can produce after restructuring and trade-policy adjustments.

The £42.8 million first-half EBITDA figure offers a more encouraging foundation than investors had during several earlier periods. If full-year profitability continues improving and Q3 weakness genuinely proves temporary, THG could begin to look increasingly inexpensive relative to its earnings recovery.

If tariff effects persist, nutrition growth slows or cash conversion disappoints, the valuation discount may remain justified. That is why Q4 growth is more important than the headline 109% first-half increase.

What should THG investors watch after the first-half results?

The immediate checkpoint is whether Q3 revenue growth lands near the approximately 2% guidance and then genuinely rebounds to 6% to 7% in Q4. Investors should also monitor whether Myprotein can sustain profitable growth without relying excessively on further pricing.

Cash conversion will be equally important. THG has spent years trying to convince the market that its large digital-commerce footprint can translate into dependable shareholder economics. Higher EBITDA is useful, but sustainable free cash flow would be far more persuasive.

The September update has therefore strengthened the recovery case while introducing another short-term uncertainty. THG is producing much better first-half profitability, but the European customs shock means investors do not yet get a clean quarter in which to judge the underlying trajectory.