A cultural transformation is redefining how consumers approach fitness and wellbeing, turning the once-reluctant trip to the gym into something closer to a modern religion.
Social media has made premium memberships as much about aspiration as exercise. The supplements industry has exploded in tandem, with protein powders and electrolytes now fixtures on supermarket shelves; the weight-loss drug phenomenon has heightened society’s focus on physical appearance and health.
In the gym world there appears to be a polarisation in preferences. Posh gyms such as Third Space, fitted with cryotherapy chambers and climbing walls, are in the race for more sites. At the other end are the no-frill gyms such as The Gym Group and the privately owned PureGym, Britain’s biggest fitness club, which provide the essentials without fluffy towels and saunas.
With all this in play, The Gym Group, London’s only listed gym operator, presents a compelling proposition for investors seeking exposure to a social movement that is defining the times.
The Gym Group was founded in 2007 by John Treharne, a former England squash player who previously enjoyed success with Dragons, his health club chain, and floated in 2015. Its 252 gyms are open 24/7, with the cheapest membership costing £14.99 a month. Prices depend on the area.
Like many leisure businesses, once Covid forced the closure of its entire estate, revenues tumbled and losses mounted. However, The Gym Group froze subscriptions during lockdown, limiting cancellations. Still, naysayers aired concerns that customers would continue to swap gym memberships for Pelotons and at-home exercise with Joe Wicks on TV. How wrong they were.
The numbers speak for themselves. At the end of 2019 The Gym Group had 794,000 members. Since lockdown restrictions eased, memberships have continued to rise. It closed the end of its most recent financial year, last December, with 891,000, a 5 per cent increase on the 850,000 members it had at the end of 2023.
Its most recent results, for the six months to the end of June, revealed memberships had risen to 949,000, with revenue generated from each member per month, on average, rising to £21.16, up from £20.44 in the equivalent period a year before, largely driven by price increases and higher joining fees.
This helped The Gym Group ring up half-year sales of £121 million, an 8 per cent rise on the same period a year earlier, lifting it to a pre-tax profit of £3.3 million. Non-property net debt fell to £51.2 million, from £54.6 million last year.
With trading in July and August sustaining momentum, management expects to deliver like-for-like revenue growth of about 3 per cent for the full-year, and anticipates adjusted profit less normalised rent at the top end of analyst consensus of between £50.6 million and £52.8 million.
Plans to open between 14 and 16 new gyms this year, which will be funded from free cashflow, are on track, as is a three-year target to open about 50 sites as it seeks to take “full advantage of the significant white space opportunity for low-cost gyms in the UK”.
As well as growing its portfolio, as part of The Gym Group’s “next chapter” growth strategy, launched last year, it is aiming to increase returns from its existing estate and last year spent £12.2 million upgrading the facilities and equipment at over 100 of its mature gyms.
While the company has particularly benefited from appealing to a more health and budget-conscious demographic, The Gym Group is looking at other revenue-generating avenues such as corporate memberships. Last month it announced a pilot partnership with Wellhub, a corporate wellness platform, involving 190 of its gyms, which will “test its potential for incremental membership growth”.
Analysts at Shore Capital estimate the channel could potentially add £3 million to sales if 1 per cent of employees eligible for Wellhub were to sign up. The favourable market backdrop and new openings support the group’s targets, which should “materially” improve its cash position, which the broker believes could lead to cash returns to shareholders by the end of 2026.
The Gym Group’s enterprise value is just 6.2 times forecast earnings before interest, taxes and other expenses, which is towards the bottom end of its historical range. While the bears are concerned about how the company’s large proportion of young customers may be quick to ditch their memberships when financially squeezed, the valuation fails to take into account the favourable structural demand for health and fitness.
Advice: Buy
Why? After a successful recovery, still has plenty of puff