Barclays thinks The Gym Group PLC (LON:GYM) is fit enough to return to an ‘overweight’ rating, with its analysts raising its stance from ‘equal-weight’ based on improving pricing trends.
The UK bank’s analysts also raised their target price for the FTSE All-Share listed firm to 300p from 265p, with the stock currently trading at 238p, up 1.3% on Tuesday’s close.
READ: Gym Group’s revenues and profits surge as gymgoers flock to its no-frills fitness clubs
In a note to clients, the Barclays’ analysts said: “Our analysis of pricing in the UK low-cost gym sector suggests membership fees are increasing once again.”
They pointed out that had been concerned that price cuts in 51 Gym Group gyms were an early signal that over-capacity had been reached.
However, the analysts added: “Of these 51 gyms where prices had been cut, 22 are now back to their original price, with only one gym still at the trough price from November 2018.”
They said this suggests that Gym is confident enough to edge prices higher, with their concern of industry oversupply was premature.
The analysts added: “Aside from these 'price cut' gyms, we note that pricing growth has been strong in recent months across the overall estate.
“Prices increased in 50/24/35 gyms in May/June /July, vs declines in just 3/1/4 gyms. Close peer Pure Gym has also gradually increased prices since last autumn, suggesting industry pricing is rational,” they said.
The analysts also noted that Gym Group delivered a solid set of full-year 2018 results in March after a disappointing January update.
They concluded; “Continued delivery will help rebuild their track record, increased penetration of LIVE IT should help drive yield per member, and strong earnings growth could drive a re-rating to our £3.00 PT.”