Research: Consumer
Gym Group hits the spot after COVID-19 with its market-leading, low-cost offer finely attuned to an increasingly health-conscious consumer at a time of economic downturn. Also, growth opportunities abound thanks to weakened competition and a distressed property market affording prime sites at ever cheaper prices and on more flexible terms. Confidence in Gym Group’s prospects is justified by its successful site development (typically 30%+ ROIC in the mature estate before COVID-19) and continued investment in IT during the pandemic. Despite 45% of trading days lost, 2020 results showed a rise both in yield per member and year-end liquidity (£53m), marked by tight cash management and two refinancings.
Gym Group |
In the right place
|
Travel & Leisure |
QuickView
25 March 2021 |
Share price graph
Share details
Business description
Bull
Bear
Analysts
|
||||||||||||||||||||||||
Gym Group hits the spot after COVID-19 with its market-leading, low-cost offer finely attuned to an increasingly health-conscious consumer at a time of economic downturn. Also, growth opportunities abound thanks to weakened competition and a distressed property market affording prime sites at ever cheaper prices and on more flexible terms. Confidence in Gym Group’s prospects is justified by its successful site development (typically 30%+ ROIC in the mature estate before COVID-19) and continued investment in IT during the pandemic. Despite 45% of trading days lost, 2020 results showed a rise both in yield per member and year-end liquidity (£53m), marked by tight cash management and two refinancings.
A healthy glow
The health shock of COVID-19 should accelerate longstanding growth in membership of UK health and fitness clubs, notably in the market-driven, low-cost gyms with their value for money and flexible no-contract offer suited to uncertain times. A PwC survey in Q420 found almost 50% of UK 18- to 34-year-olds, the bulk of Gym Group membership, will exercise more than pre-COVID-19, while almost all company members apparently look to return as soon as possible. Management is ready to capitalise with eight imminent openings/fit-outs after a similar number last year. The pandemic-led fallout among competitors, eg c 20% cut in local authority sites, and a fragile property market offer unusually favourable conditions for expansion in low-cost gyms, which PwC estimates at a potential further 460 to 660 sites vs c 735 now. Gym Group’s new small box format (7,000–8,000 sq ft, half the size of its standard large box) will address burgeoning demand in smaller catchment areas.
Feeling the burn
Despite the 45% loss of trading days (c £5m monthly cash burn) and an even sharper fall in revenue, 2020 saw net debt unchanged in the period at £47m. While largely a function of a £40m placing at the outset of the pandemic, it did still allow considerable expansionary capex (c 70% of 2019 levels) and, together with a £30m increase in bank facility, year-end liquidity rose to £53m of a total £100m facility.
Valuation: A note of caution
Tailwinds notwithstanding, there may be no quick earnings fix. With sites still weeks from reopening (12 April) and average membership reduced to levels only a few months after opening, the challenge will be to shorten the typical two-year profit maturation profile. Consensus estimates reflect that likely recovery pattern.
|
Consensus estimates
Source: Refinitiv. Note: *Pre-exceptionals. **Indicative as 1.15p final not paid due to COVID-19. |
EDISON QUICKVIEWS ARE NORMALLY ONE OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
|
||||||||||||
|
||||||||||||
Research: TMT
As flagged in IQE’s January trading update, FY20 revenue rose to a record £178.0m, taking the company from an adjusted operating loss of £4.7m to £5.4m profit. This excellent performance was the result of 5G roll-out boosting demand for IQE’s epitaxy in both infrastructure and handsets, combined with consistent demand for photonics epitaxy from IQE’s longstanding VCSEL customer. While these favourable trends have continued into FY21, we are cutting our FY21 revenue estimate by £8.3m and PBT by £9.5m to reflect the strengthening of sterling against the US$.