Shares in The Gym Group Plc (LON:GYM) sank in late-morning trading Tuesday after higher debt expectations took the shine off increased revenue and membership for the full year.
In a trading update, the firm expected revenues for 2018 to be up 35.6% at £123.6mln, while year-end membership numbers were 19.3% higher at 724,000 and average membership was up 31.2% at 693,000.
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The group added that its adjusted underlying earnings (EBITDA) was expected to be around £37mln compared to £28mln in 2017.
Incomes had also been lifted by the introduction of the LIVE IT premium product, which includes perks such as discounts and multiple gym access, that was rolled out nationally at the end of May.
The group said the uptake had been “encouraging”, with 11.7% of members subscribing by year-end which had contributed to a 3.3% increase in average revenue per member per month to £14.89 compared to 2017.
However, the firm also forecast an £8.5mln increase in net debt to £46mln following its acquisition of 13 sites from easyGym in June and investment in 17 new site openings over the year.
The new opening programme had also been more weighted toward the second half, the company said, meaning the period had seen fewer trading weeks than expected.
The conversion of 18 sites acquired from Lifestyle Fitness during the year had also resulted in more weeks of site closures than predicted.
The introduction of a new operating model for personal trainers was also expected to result in an annual incremental cost of £1mln for 2019 and thereafter.
Richard Darwin, chief executive, said the pace of expansion had been “significant” during the year, adding that 15 to 20 more gyms were slated to open in 2019.
“We are well placed to continue to generate high levels of growth whilst maintaining strong returns on capital. We are confident that in 2019 we will continue to develop and build the business to deliver another year of profitable growth for shareholders."
The company is due to announce its results for the year on 19 March.
Broker trims forecasts but says enterprise multiple is “too low”
In a note, analysts at broker Peel Hunt trimmed their 2018 pre-tax profit forecasts by £2mln to £14mln but retained their ‘Buy’ rating and 350p price target on the stock.
The broker said despite the “diminished” upside in the medium-term forecast, the enterprise multiple for the firm was still “too low” at 7.2x for the 2019 fiscal year, adding that the group’s new sites were performing well, and the benefits of the LIVE IT premium offering were “just starting to emerge”.
The Gym Group's shares were down 6.7% at 210p.