Fitness centre operators like The Gym Group (LSE: GYM) have been hit hard by Covid-19 lockdowns. These leisure companies aren’t out of the woods yet either, as the Delta variant continues pushing infection numbers northwards. However, as someone who isn’t averse to a little risk, I think this UK share could be a great long-term buy.
If anything, the coronavirus crisis has improved the outlook for companies specialising in fitness and wellbeing as the theme of looking after oneself has grown in popularity. What’s more, Britons are particularly enthusiastic when it comes to personal fitness. According to Statista, some 10m people here are members of a health and fitness club. This puts the UK second only to Germany.
The popularity of keeping fit was underlined in The Gym Group’s latest financials. In May, the UK leisure share said trading had beaten its own expectations and that 729,000 members were on its books as of 24 May. This was up from 547,000 less than three months earlier.
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Expanding for growth
Encouragingly the business is taking steps to exploit this phenomenon to its fullest. The Gym Group opened four new gyms in April alone. It recently raised £31.2m by placing new shares to accelerate its site expansion programme too. It plans to open 40 new fitness centres over the next 18 months.
The experts at Researchandmarkets.com think the global gym market will grow at a compound annual growth rate of 7.7% through to 2024. It’ll be worth an estimated $96.6bn by the end of the period. And if previous years are anything to go by, operators at the low-cost end of the market like The Gym Group will be the main driver of this growth.
A UK turnaround share on my radar
There’s a risk the UK share might not have things all its own way though. Competition in the gym space is intense and The Gym Group isn’t the only operator to be rapidly expanding. Then there’s the emergence of Peloton, which allows people to work out at home in a novel way. It makes fitness equipment and offers subscriptions for people to take part in live instructor-led group classes.
Peloton had 5.4m signed-up members as of March, an astonishing figure when you consider it only sold its first bike in 2014. The business rolled out a line of cheaper line of treadmills from last September to keep membership growing as well.
??????????????All that being said, City analysts are confident The Gym Group will bounce back strongly from the washout of 2020. They think the UK share will narrow losses to around £31m in 2021, from £47m last year. And they think it’ll bounce back into the black with profits of approximately £10m in 2022.
The business isn’t without its challenges, but I still think the fitness firm could still make me handsome returns over the next decade.
