Is it worth investing in Applied Nutrition?

Applied Nutrition, the protein and nutrition supplement business, had one of London’s biggest IPOs so far this year, hitting the market last week at a total value of £340 million. The shares have slipped slightly from 140p at IPO to 136p on Monday, as investors digest the prospects of this fast-growing, Liverpool-based business. So are the shares worth tucking into?
Applied Nutrition was founded in 2014 by the chief executive Thomas Ryder, 40, who grew up in Liverpool and trained as a scaffolder. He had been selling supplements as a side business before taking it up full-time at the age of 24.
The group now has a range of health and fitness products, including protein shakes, energy drinks and vitamins, which it sells across more than 80 different countries. It made £24 million in pre-tax profit on £86 million in revenue in its financial year that ended in July.
Applied Nutrition has two channels: business-to-business distribution, where it makes 91 per cent of its sales, and direct to consumer. Through its B2B distribution, it sells directly to retailers and gyms, or sports nutrition specialist distributors. It also sells via its own websites in its direct-to-consumer business, as well as on Amazon and Ebay.
This is a highly profitable model. Its B2B trade means it does not need to spend much on advertising, and in-house manufacturing means gross profit margins have averaged a chunky 42 per cent over the past three years. The company also has strong free cash flow generation and a very impressive rate of return on capital employed (which measures how effectively it turns its assets into profit) of more than 70 per cent.
There is good geographical reach too. The UK accounted for 39 per cent of its revenue in its financial year ended July 31 and Europe 12 per cent. The remainder, roughly half of its total sales, came from other international markets, particularly in the Middle East and North America.
The brand is still in the early stages of building up a presence in the United States, which is a vast and fiercely competitive market for fitness and health supplements. It launched there in 2022 and had secured a spot on the shelves of Walmart by 2023.
There still seems to be plenty of room for growth. So far Applied Nutrition has racked up an impressive record: revenues have grown by around 4 times since 2021, and analysts at the broker Panmure Liberum think that sales could hit £100 million by the end of its next financial year. Applied Nutrition reckons its addressable market is worth £189 billion, roughly in line with Panmure Liberum’s estimate of £188 billion.
There is some debate about how long the business can sustain its impressive margins. Applied Nutrition is likely to eventually become more brand-led, as it establishes a stronger presence in key growth markets. At this point, margins may fall as it invests more in its own facilities — guidance for capital expenditure is already quite low at around £1 million over the medium term — as well as investing more in advertising.
There are some risks attached to protein prices, too. Most of its total raw material spend is on raw ingredients, at 68 per cent. In 2022, its gross margin fell from 41.5 per cent to 40.2 per cent, partly because of a spike in protein prices.
Still, Applied Nutrition looks like it has the right ingredients for success in the long run. The company has already won the backing from big investors such as Peter Cowgill, the former JD Sports boss. Andy Bell, the founder of the investment platform AJ Bell, joined as the company’s chair early this year.
The shares trade at 17 times forward earnings, based on estimates from Panmure Liberum, which seems a fair exchange for a company with a strong global brand, vertical integration and healthy margins in a high growth market. Advice BuyWhy Highly profitable business in a growing market
This FTSE 250 engineer, once a stock market darling, has struggled to hold onto investors’ favour this year. Renishaw has lost roughly a fifth of its market value in the past six months as it has struggled against a downturn in some of its biggest end-markets. But an update last week suggests the tide could be turning.
The Gloucestershire-based engineer makes micro instruments that are used in medical applications and components for smartphones. It makes roughly 46 per cent of its sales from the Asia Pacific region, but it had been struggling with sales in the Americas and Europe last year and, more widely, the sale of its position measurement products.
Its first update for this financial year has given shareholders reason for optimism: pre-tax profits rose by 22 per cent to £34 million in the three months ended 30 September, with sales up 4 per cent at constant currency, thanks partly to stronger sales of its encoder products to the chip manufacturing industry. Renishaw did add a touch of caution to its outlook, warning that demand from the chip industry may not be as strong for the rest of the year.
Still, Renishaw has been lining itself up for long-term progress, investing heavily in its production capabilities. Capital expenditure came in at £65.2 million as at the end of June, although this was down from a peak of £73.8 million the year prior and is expected to fall to £40 million next year. The company has invested in its production facility in Wales, which will eventually increase its manufacturing capacity by 50 per cent. It still retains a robust balance sheet, with £276 million of net cash recorded as of the end of September.
The shares trade at a significant discount to their historic range, at 20.9 times forward earnings compared with a 10-year average of 30.2. It is by no means cheap, though it could suit an investor who is willing to stick it out for the long haul, as bullish analysts forecast that falling interest rates could help stimulate demand among its industrial and technological clients. Advice HoldWhy Improved trading and greater production capacity
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