Applied Nutrition, a leading British sports nutrition, health, and wellness brand, recently advised that it’s considering an Initial Public Offering (IPO) on the London Stock Exchange in the near future. This could be open to retail investors like myself. Should I apply to buy shares in the IPO (or buy them after if I’m not allocated any stock)? Let’s discuss.
A trusted brand
Founded in 2014, Applied Nutrition isn’t a household name (yet). But I know it quite well personally. In the past, I’ve bought a range of products from the company including protein powders, vitamins, and electrolyte tablets. I’ve always been impressed with its offerings, and I see it as a trusted brand.
Smart business model
In terms of its business model, the company largely employs a business-to-business (B2B) strategy (selling its goods to major retailers). It believes that this is a low risk, cost-effective go-to-market strategy that enables strong growth.
However, a small proportion of its sales are made directly to consumers via the group’s websites and through Amazon and eBay. This side of the business has been growing strongly in recent years.
While the UK is currently the group’s largest market in terms of revenue, it sells its products in over 80 countries today. And international sales are growing rapidly.
Impressive growth
Zooming in on the financials, there’s a lot to like.
For starters, group revenue is growing at an impressive rate. Between the year ending 31 July 2022 and the year ending 31 July 2024, it rose a whopping 146% (caveat: there’s a chance this may have been boosted by lower sales during Covid).
Secondly, the company is generating significant free cash flow. For the 12 months to the end of July, it was £16.9m (up 125% on the same period two years earlier).
| Year ending | 31/7/2022 | 31/7/2023 | 31/7/2024 |
| Revenue (£000) | 35,028 | 60,781 | 86,152 |
| Gross profit (£000) | 14,078 | 27,146 | 41,294 |
| Adjusted EBITDA (£000) | 10,410 | 18,548 | 25,993 |
| Free cash flow (£000) | 7,459 | 9,337 | 16,891 |
| Net cash/(debt) (£000) | 5,399 | 12,735 | 18,720 |
Looking ahead, the company reckons there’s plenty of growth to come. According to Euromonitor, the global sports nutrition, health and wellness market is expected to grow at an annualised rate of 8.1% between 2023 and 2028 so this market growth should provide tailwinds for the company.
We are only scratching the surface of our growth opportunity, and this IPO positions us ideally for the next step of our development.
Applied Nutrition CEO Thomas Ryder
Given this level of growth, I think demand for stock in the IPO will be quite high. And I think Applied Nutrition shares could potentially do well after they are listed.
My move now
Now, there are some risks to consider here, as with any investment.
In relation to the IPO, there’s no guarantee that the stock will do well after the event. Much will depend on the valuation the company receives. I’ve read that the company could be valued at around £500m. But this isn’t confirmed.
At that market cap, there’s a bit of valuation risk. I calculate that the company would have an enterprise value (EV)/EBITDA ratio of about 18.5. That’s quite high.
Longer term, a key risk is competition from rivals. This industry is highly competitive and it’s hard to know if Applied Nutrition has a genuine competitive advantage.
All things considered, however, I’m relatively bullish on the company given the rate of growth. I will most likely apply for some shares in the IPO (if it goes ahead). If I miss out on an allocation, I will assess the valuation after the IPO and go from there.
