Research: Consumer
Gym Group has accompanied confirmation of FY23 profit resilience and continued buoyancy (like-for-like revenue up 12% in the first two months of 2024) with a clear commitment ‘to accelerate, not reinvent the wheel.’ The latter is telling with new senior management endorsing Gym Group’s sweet spot as a low-cost operator in the long-term growth market of health and fitness. Its confidence in material scope for enhanced pricing and member acquisition and retention is complemented by expansion targeted at sites with perceived 30% return on invested capital (ROIC) potential (10 to 12 openings in 2024 with c 50 over three years), although the typical two-year profit maturation profile means no quick earnings fix. Improving finances (1.7x leverage) should allow this as well as increasingly important technology investment.
Gym Group |
The power of marginal gains
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Travel and leisure |
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28 March 2024 |
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Gym Group has accompanied confirmation of FY23 profit resilience and continued buoyancy (like-for-like revenue up 12% in the first two months of 2024) with a clear commitment ‘to accelerate, not reinvent the wheel.’ The latter is telling with new senior management endorsing Gym Group’s sweet spot as a low-cost operator in the long-term growth market of health and fitness. Its confidence in material scope for enhanced pricing and member acquisition and retention is complemented by expansion targeted at sites with perceived 30% return on invested capital (ROIC) potential (10 to 12 openings in 2024 with c 50 over three years), although the typical two-year profit maturation profile means no quick earnings fix. Improving finances (1.7x leverage) should allow this as well as increasingly important technology investment.
Marginal gains add up
The newly announced ‘strategy update’ was notable for its measured approach by reinforcing the positives of Gym Group’s position and possible expansion and determining as ‘Mid Term’ any broadening of growth by way of adjacent revenue streams and new markets and formats. Key initiatives include narrowing the pricing gap to closest competitors (the company is typically c £2 a month cheaper even after a recent 8% increase), the recent introduction of off-peak membership to attract a new type of member and improving retention of members most susceptible to churn (during their first 45 days) by increasing engagement via enhancements to the company’s popular app (used by 80% of members). ‘For the purpose of illustration, not guidance,’ management suggested that an extra £1 on average revenue per member per month (£19.50 in FY23), a 1% rise in volume and an extra week’s tenure could add annually £17.5m lucrative marginal revenue.
New sites delivering
With good growth in FY23 membership (up 8%) and yield (up 9%) announced in January’s update, a highlight of the preliminary results was the continued ability to absorb utility and staff cost inflation (slight rise in H2 EBITDA less normalised rent). Concern at the disparity between mature sites ROIC of 19% in FY23 and the 30% aim for openings is mitigated by 30% on average being achieved by 101 sites matching target criteria, driving a mid-term goal of 25% ROIC for the mature estate.
Valuation: Reasonable
With good earnings visibility and a clear path to growth, Gym Group’s FY24e EV/EBITDA of 6.4x is justifiably similar to that of its peers, Basic-Fit and SATS.
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Consensus estimates
Source: LSEG. Note: *Less normalised rent. |
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: Healthcare
The Human Research Ethics Committee (HREC) has provided the green light to commence enrolment for Mendus’s AMLM22-CADENCE trial from April 2024. This Phase II trial in collaboration with the Australasian Leukaemia and Lymphoma Group, a clinical trial research group focused on haematological cancers, will evaluate lead cancer vaccine vididencel, in combination with standard of care oral azacitidine (Onureg) as a maintenance treatment for acute myeloid leukaemia (AML). A pivotal global registrational trial is planned from H225 with safety data from the AMLM22-CADENCE trial to be used for in the registration dossier. We view the latest update as a positive indicator that this programme is progressing as planned and believe that the launch of AMLM22-CADENCE will represent a key milestone.