The GYM Group (GYM) 157p

Gain to date: 14%

Gym operator GYM Group (GYM)is showing good gains since we identified the low-cost gym specialist as an attractive risk/reward investment opportunity on 18 August.

We noted the business has got itself back into shape and appears to be building strong momentum with consistent like-for-like sales growth and rising site yields amid an acceleration of new site openings.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

First-half results on 11 September did not disappoint with a significant increase in profit above market expectations.

Revenue climbed 12% to £112 million with memberships up 3% year-on-year and average revenue per member per month rising 9%. Like-for-like revenue grew 9% in the period.

Group adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) less normalised rent increased 28% while free cash flow jumped 73% to £24.5 million.

The group has opened seven new sites in the year to date and remains on track to open 10 to 12 new sites for year, as previously guided. There is a strong pipeline of high-quality sites to accelerate openings to between 15 to 20 sites in 2025, all funded from free cash flow.

The company said strong trading continued in July and August and it now expects to deliver between 5% and 6% like-for-like revenue growth in 2024. Management raised full-year guidance to the top end of recently revised market expectations.

This implies full-year EBITDA less normalised rent of close to £44 million based on company-compiled consensus estimates.

Shore Capital’s leisure analyst Greg Johnson increased his 2024 EBITDA forecast by £1 million to the top of the guided range and sees scope for further modest uplifts as the year progresses.

WHAT SHOULD INVESTORS DO NOW?

The group appears to be executing well on its growth plans while increasing profitability and site returns on investment. With plenty of headroom to profitably grow the estate, and the shares trading below replacement cost, we remain buyers.