Shares in gyms operator The Gym Group PLC (LON:GYM) saw some profit taking after in-line interim results.
The shares, which started the year at a flabby 220p, had toned up to 325p by last night’s close but surrendered 5p of those gains as the company left full-year expectations unchanged.
Interim dividend hiked
Revenue in the first six months of the year rose 36.1% to £58.3mln from £42.8mln, a tad above house broker Numis’s forecast of £58.2mln.
The average membership total in the period was 664,000, up 34.1% year-on-year and 10,000 higher than Numis had predicted.
Adjusted profit before tax rose 8.4% to £7.0mln, which was slightly below Numis’s forecast of £7.1mln.
Go home, then show up stronger tomorrow. ????⚽️ pic.twitter.com/8BenVFqFmI
— The Gym Group (@TheGymGroup) June 29, 2018
Group adjusted underlying earnings (EBITDA) climbed 28.0% to £17.5mln from £13.7mln the year before but the EBITDA margin eased to 30.1%, in line with expectations, from 32.0% the previous year, reflecting new gyms opened in the period that take a while to get the membership up. Numis noted that 34% of the sites in the reporting period were regarded as immature, versus 22% in the same period of last year.
Net debt decreased to £21.6mln (December 2017: £37.5mln) due to cash of £24.0mln received from the equity placing for the easyGym acquisition.
The interim dividend was bumped up to 0.35p from 0.30p the year before.
"We now have systems and technology in place to support a business of considerable size and scale with our ERP [enterprise resource planning] system safely landed. These investments will allow us to start the roll-out of the new Personal Trainer model and further capitalise on LIVE IT., our premium pricing offer, which is proving popular with our members and experiencing strong levels of take-up,” said John Trehane, the chief executive officer who is set to step down next month.
On track to meet full year expectations
“Since the end of the half year we have expanded again with the acquisition of 13 easyGyms taking us close to 150 sites. In addition, we remain well set to achieve our target range of 15 to 20 organic openings for 2018,” Trehane revealed.
“In my last set of results as CEO, I am confident that the business is in as strong a position as ever to execute its strategy and deliver further accelerated profitable growth. After a strong first half we are on track to meet market expectations for the full year and look forward to further progress in the second half of the year,” he added.
Numis left its full-year forecasts unchanged following the results. Based on the house broker’s earnings forecast for 2019, the stock trades on an earnings multiple of around 25, which Numis said is around a 20% discount to its peer group.
The broker expects this discount to diminish and reiterated its ‘buy’ recommendation.
Liberum Capital Markets is also a buyer and has a target price of 340p.
It reckons profit growth should accelerate in the second half of the year as the estate matures and the company beds in its new customer relationship management system.
“The market opportunity is significant and Gym Group will continue to capture share,” Liberum predicted.
“Take up of LIVE IT has risen to 55k members or 7.6% of total pro forma membership reflecting significant sign up from new joiners and is an impressive c1.1% increase in a month. The LIVE IT premium pricing model was launched in 2017, and following a trial, was rolled out across the whole estate by May 2018,” Liberum noted.
“While initial take up cannibalised some existing revenue streams (i.e. the 6% of members with twin or multi-site membership), take up has now surpassed that and we expect a further acceleration during the Sept/Oct membership drive. Already Average Revenue Per Month (ARPM) per member has risen 1.6% to £14.65 (from £14.42 last year) and this should increase more rapidly from here,” the broker suggested.