Basic-Fit — In good shape

Research: Consumer

Basic-Fit — In good shape

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.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

Consumer

Basic-Fit

In good shape

Travel and leisure

QuickView

21 November 2023

Price

€27

Market cap

€1,780m

Share price graph

Share details

Code

BFIT

Listing

Euronext Amsterdam

Shares in issue

66.0m

Business description

Basic-Fit is the largest fitness chain in Europe with 1,402 clubs and 3.75m memberships. It is clear market leader in Benelux, France and Spain and has a growing presence in Germany. It operates in the low-cost gym segment with a differentiated membership model.

Bull

Leader in long-term growth market with significant embedded earnings power as clubs mature.

Targeted more than doubling of owned clubs by 2030 with rapid cash flow break-even.

Solid finances (debt extended to 2027) with strong free cash flow funding growth internally.

Bear

Economic uncertainty mitigated by value offering that is cheaper and broader than competitors.

Highly competitive market combated also by breadth of offering and cluster strategy.

Execution risk of ambitious site roll-out, although the company has a positive record of delivery.

Analysts

Richard Finch

+44 (0)20 3077 5700

Russell Pointon

+44 (0)20 3077 5700

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.

Consensus estimates

Year
end

Revenue
(€m)

Adjusted EBITDA* (€m)

Adjusted net result* (€m)

Adjusted EPS* (€)

DPS
(€)

EV/adjusted EBITDA* (x)

12/21

340.7

31.8

(95.2)

(1.49)

0.0

73.2

12/22

794.6

203.8

11.3

0.17

0.0

12.1

12/23e

1,048.0

265.0

N/A

N/A

0.0

9.7

12/24e

1,254.0

348.0

N/A

N/A

0.0

7.5

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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This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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