The wellness trend was driving membership growth across Europe before the pandemic.
As the world recovers from the coronavirus, renewed interest in staying healthy is likely to boost demand for workouts and classes, which should boost shares in Europe’s two largest publicly traded gym chains.
BasicFit (ticker: BFIT.NV), which has 828 gyms, is listed in the Netherlands, while The Gym Group (GYM.UK) is a smaller UK-listed company with 179 gyms.
The company also struck a timely deal in early February with Fiit, which offers remote classes through its app. Brokerage Liberum said in a recent research note that these on-demand fitness classes complement gym memberships, making subscribers more likely to join.
At this point, it’s difficult to assess how customers working out at home with equipment or online fitness classes will affect your business and whether they will return to the gym.
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Both chains have been forced to close stores during the pandemic, and reopenings will depend on local lockdown regulations.
Basic-Fit is the European market leader in the value for money fitness market, operating in the Netherlands, Belgium, Luxembourg, France and Spain, offering “a simple, essential and effective fitness experience” at an affordable price.
The stock price rose steadily from 14.50 euros ($15.90) in June 2016 to 35.15 euros in February before falling to 12 euros a month later. It has recently risen to 24.35 euros.
KBC Securities sees this rising 19% to 29 euros. RBC Capital Markets analyst Christine Chou wrote in a May report that BasicFit and The Gym Group
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Valuations of these stocks are below their long-term trading ranges. She said the short-term turmoil in the sector is significant, but the crisis will strengthen the longer-term trend of increased health awareness.
BasicFit’s market capitalization of 1.3 billion euros makes it priced at 93.5 times this year’s expected earnings, a significant discount to its peers.
The company posted an operating profit of 42.8 million euros in 2019. Sales were 515.2 million euros, up 35% from the previous year. BasicFit offers both virtual and live group lessons, which should help protect the company against closures. BasicFit raised 133.3 million euros through the sale of new shares on Monday.
In terms of liquidity, the company can weather a nine-month closure period, while Jim Group has a 16-month buffer.
Gym Group
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The company, which also operates in the lower-cost space, is the fourth-largest gym operator in Europe with 794,000 members. Shares rose from $202.50 ($2.58) in November 2015 to 308 pence in January before falling to 95 pence in March. They have since recovered to 177 pence.
Broker Numis rates it a buy recommendation, citing a potential rise of 74% to 308p.
“Even in a tough post-Covid economic environment, we expect the low price, no contract and 24/7 gym offer to remain attractive to consumers who prioritise health and fitness,” Anna Barnfather, an analyst at brokerage Liberum, who has a price target of 280 pence, wrote in a recent note.
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The company, which has a market capitalization of £293 million ($374 million) and has about 2,073 employees, reported adjusted pre-tax profits of £14 million on sales of £153 million in 2019. It also raised £41.3 million in a fundraising round in April.
The low-end gym market is driving growth in the sector, and Gym Group’s stock looks especially strong thanks to its partnership with Timely Fit. RBC Capital’s Zhou says Gym Group is crowding out the mid- and low-end gym market.
Both stocks could add strength to your portfolio.
