Research: Consumer
Basic-Fit remains firmly on the front foot after confirming at its recent capital markets day (CMD) that its aim is to more than double its owned clubs from 1,402 to 3,000–3,500 by 2030. Management is confident it can fund this growth internally as the business is highly cash generative and well-financed. The 387 net openings since 2021 (c 40% growth) provide both welcome earnings visibility as clubs mature and a strong record of delivery. Further positives are a ringing endorsement of Germany as a prime opportunity, a ‘game-changing’ new maintenance contract (saving €40m pa by 2030), a heightened focus on membership yield (the company is guiding +4% in 2024) and scope for additional growth by franchising. On Basic-Fit’s preferred metric of pre-IFRS 16 adjusted EBITDA, consensus forecasts of €348m for 2024 give EV/EBITDA of 7.5x.
Basic-Fit |
In good shape
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Travel and leisure |
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21 November 2023 |
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Basic-Fit remains firmly on the front foot after confirming at its recent capital markets day (CMD) that its aim is to more than double its owned clubs from 1,402 to 3,000–3,500 by 2030. Management is confident it can fund this growth internally as the business is highly cash generative and well-financed. The 387 net openings since 2021 (c 40% growth) provide both welcome earnings visibility as clubs mature and a strong record of delivery. Further positives are a ringing endorsement of Germany as a prime opportunity, a ‘game-changing’ new maintenance contract (saving €40m pa by 2030), a heightened focus on membership yield (the company is guiding +4% in 2024) and scope for additional growth by franchising. On Basic-Fit’s preferred metric of pre-IFRS 16 adjusted EBITDA, consensus forecasts of €348m for 2024 give EV/EBITDA of 7.5x.
Ambitious long-term expansion on track
While management acknowledged that macro uncertainties mean that it will miss its 2021 CMD target of 2,000 owned clubs by 2025, it was understandably at pains to show the validity of its 2030 target. Basic-Fit’s markets (six countries) remain far from mature (except for the Netherlands, they have about half the fitness membership penetration rate in the US). With just 12 clubs in Germany, Basic-Fit has yet to tap the country’s ‘huge growth potential’, so its aim is to replicate its pathway to market leadership in France (c 250 net openings since 2021), initially with clusters of sites in up to eight cities, and potentially 650–900 clubs by 2030. While organic growth is preferred, there may be opportunistic acquisitions post-COVID. Franchising could provide a further boost and is under consideration.
Improving returns
A key financial takeaway from the CMD is the new primacy of yield over volume (membership growth guidance will no longer be given). The company expects Premium membership uptake, the scope to raise pricing (Basic-Fit says it is c 15% cheaper than its competitors) and a natural wastage of legacy members not subject to higher prices to grow average revenue per member per month by at least 9% over the next two years to more than €25.50 and thus be a key driver of EBITDA.
Valuation: Undemanding
Earnings visibility is good due to the embedded value of ‘unprecedented’ recent investment and clear long-term growth potential. Basic-Fit’s FY24e EV/EBITDA of 7.5x is similar to that of its peers, Gym Group and SATS, which are much smaller and slower growing.
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Consensus estimates
Source: Consensus per company website. Note: *Pre-IFRS 16 and excluding exceptionals. |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: Investment Companies
The European Smaller Companies Trust’s (ESCT’s) manager, Ollie Beckett at Janus Hendersons Investors (JHI), remains very positive about the outlook for European small-cap companies, which is reflected in a relatively high level of gearing of c 15%. He considers the last three years, where small-cap stocks have lagged the performance of large-cap equities, an anomaly and a result of macroeconomic events and recession fears, which have led to elevated investor risk aversion. The manager believes that the current valuation of the trust’s benchmark, the MSCI Europe ex UK Small Cap Index, provides a very attractive entry point to the asset class. ESCT’s portfolio of reasonably valued stocks with exposure across the company life cycle has a commendable performance track record, with its NAV total return ranking first out of the four funds in the AIC European Smaller Companies sector over the last one, three, five and 10 years.