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01 Jun 2020
Buy shares in Gym Group says Peel Hunt, as gym reopenings in Europe raise hopes of recovery
By Liz Terry
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Strong trading in Europe as clubs reopen is bolstering trading in Gym Group shares
Photo: The Gym Group
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Corporate broking and advisory firm, Peel Hunt, has issued a 'buy' recommendation for shares in The Gym Group.
Peel Hunt says if gyms in the UK can reopen soon, evidence suggests The Gym Group "could resume profitable trading soon." In this scenario, it expects its financial forecasts for the company to 'remain intact'.
"The US and Switzerland have led the way in allowing gyms – which should be part of the solution in this health crisis – to re-open." says the note issued by Peel Hunt.
"Planet Fitness in the US experienced only a 'slight cancellation bump' in membership and Pure Gym in Switzerland has retained over 90 per cent of paying members", says the note, "both are ahead of our Gym Group forecast assumption of 25 per cent fewer members in the second half of 2020.
"In our view, the safe re-opening of gyms overseas under strict protocols could justify the re-opening timetable for UK gyms being brought forward."
Peel Hunt said: "Gyms are part of the long-term solution and they should be re-opened soon....the overseas experience suggests that The Gym Group could resume profitable trading soon.
"We estimate that The Gym Group could re-open on a cash-neutral basis with membership at 60 per cent of historic levels. This is helped by a 99 per cent gross margin and a labour ratio at c10 per cent."
Peel Hunt's analysis picks up on the performance of Gym Group's close competitor, Pure Gym, and gives insights into its Swiss portfolio of clubs as evidence, saying they're performing "in line with expectations" since they reopened on 11 May.
Continuing to cite Pure Gym's as an example, Peel Hunt explains its opening protocols and expected results as follows:
"With gym capacity restrictions limited to 10 sq m per person; minimum separation of 2m between attendees at all times; group exercise limited to five participants; locker rooms and showers open, but with social distancing maintained; and extensive cleaning and sanitation regimes. PureGym’s forecast member base at re-opening vs original (pre-COVID-19) budget is 82 per cent in the UK."
"The company [Pure Gym] has experienced no significant change in its membership base since its full-year results in April," notes Peel Hunt. "Across the group, 85 per cent of members were still retained as at 22 May, and the company expects to close the gap (to 100 per cent) as re-openings prove successful and as lockdown measures start to soften.
"In Switzerland, two weeks after reopening, Pure Gym's club attendance was at 65-70 per cent of 2019 levels (61k vs 92k); and paying members were over 90 per cent of 2019 levels (54k vs 59k).
"Attendance is weighted towards younger members, and evening peaks in attendance have been suppressed. In our view, this is helped by the 24/7 trading model and more flexible lifestyles, with more working from home."
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