MIDAS SHARE TIPS: With its no-frills approach to fitness and healthy earnings, Gym Group is on the up
The British are growing bigger. According to Public Health England, a Government agency that aims to protect and improve good health, two-thirds of adults and a quarter of children under ten are overweight or obese and the trend is only getting worse. The impact on the National Health Service is immense and the Government is worried.
The Gym Group is doing its bit to make people move more and eat less. The only fitness chain quoted in London, the company floated last Monday at 195p. The shares had a good week, closing at 202½p, but they still offer plenty of potential.
Gym Group is different to most of the UK’s other fitness clubs because members join for just a month at a time and can even do so for a day if they feel like it.
In charge: Gym Group boss John Treharne
There are no fixed contracts or annual membership and the cost averages £16 a month, compared with more than £40 a month at traditional rivals.
The costs are kept down because the company has developed a sophisticated IT system so members can join swiftly and easily online – and most of them do.
This cuts out lots of the membership expenses associated with traditional gyms, where forms have to be filled out onsite, with the assistance of full-time staff.
Gym Group also dispenses with extras such as saunas, steam rooms and swimming pools, after research showed that most people are primarily interested in top-quality gym equipment and classes.
These are what the company focuses on – introducing new equipment and classes on a regular basis, and ensuring centres are bright and clean.
Gyms are also open 24 hours a day, seven days a week and about a third of all members are shift workers, from medical consultants to hotel porters.
The concept works well. Founder and chief executive John Treharne opened his first gym in Hounslow, West London, in 2008 and there are now 67, with more than 350,000 members. On average, members stay for 26 months, against 17 months for traditional gym members, but many come and go – joining for the winter only or signing up during term time if they are students.
Revenue doubled to £45.5million between 2012 and 2014, while underlying earnings rose from £6 million to £14.7million.
Lean: The group focuses on top kit and avoids extras such as saunas
In the first six months of this year, earnings were £8.5million, suggesting the group is on course for a full-year figure of about £17million. The company also intends to pay a dividend from next year, though most of the spare cash will be ploughed into expanding the chain.
Pioneered by Treharne, the low-cost gym sector is still in its infancy in the UK. Including rival operators, there are just 319 low-cost clubs, compared with more than 3,600 traditional gyms.
However, low-cost clubs tend to have many more members per club and Gym Group believes there is room for at least 1,000 no-frills fitness centres.
The group intends to open 15 to 20 clubs a year for the next few years and may buy chains or individual clubs if the opportunity arises.
Germany and America are more advanced in the low-cost gym concept and its popularity in those countries suggests there is plenty of scope for growth in the UK, too.
The most important consideration with new clubs is their location – they need to be near members’ homes or places of work. Gym Group has a team of property experts sourcing appropriate sites, but because its centres are relatively compact, it can adapt properties ranging from old office blocks to surplus supermarket space.
Midas verdict: Fitness chains have a lacklustre history on the London stock market and Gym Group is the first to float for more than a decade. However, the no-frills model is very different from the glitzy flotations of yesteryear and fits in well with today’s cost-conscious consumer. Buy.
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