Earnings call transcript: GYM Ltd’s strong 2025 results boost investor confidence

Revenue rose 8% to GBP 244.9m and EBITDA less normalized rent increased 19% to GBP 56.7m, with EBITDA margin expanding 2ppt to 23%. Statutory profit before tax nearly tripled to GBP 7.4m and free cash flow increased 10% to GBP 38.3m, enabling net debt reduction of GBP 2m to GBP 59.3m (leverage 1.0x) and a GBP 10m share buyback (1.1m shares cancelled). Management expects to open 20-22 new gyms in 2026 (targeting ~75 over three years), forecasts EPS of $0.06 (2025) and $0.07 (2026), sees 2026 EBITDA at the top of analysts' ranges, and plans GBP 60-65m CapEx funded from free cash flow.

Analysis

The market is treating the low-cost gym model as a scalable, high-ROIC roll‑out story; the real optionality is not just new gym openings but the margin and ARPU lift from targeted refurb programmes, digital conversion, and incremental channels (employer wellness, referrals, add‑ons). Those revenue levers compound: modest price/yield moves plus higher conversion can materially shorten payback on expansion capital and convert a rollout from growth-only to true EPS accretion within 12–18 months.

Second‑order winners include landlords willing to accept shorter, more flexible leases and vendors of energy‑efficiency and member‑management systems—both reduce operating volatility and raise sustainable margins. Conversely, mid‑market and premium operators who rely on higher price elasticity or slower digital conversion are exposed to “trade‑down” secular risk as value propositions tighten and the demographic mix shifts younger.

Key near‑term risk windows are concentrated: (1) the upcoming months when non‑commodity site cost inflation annualizes and tests margin guidance, and (2) the go‑live of new member/payment systems where execution missteps can spike churn or payment failure rates for a quarter. Over 6–18 months, macro discretionary spend weakness or a competitive pricing war are the main catalysts that could reverse the current glidepath; regulatory or reputational shocks around GLP‑1 prescription practices present a lower‑probability but high‑impact tail risk.

Key Decisions for Investors

• Long GYM (LSE: GYM) — tactical 6–12 month position added on a pullback or any post‑H1 cost scare. Size for 5–8% portfolio exposure; target 25–35% upside driven by refurbishment/ARPU upside and self‑funded rollout converting to visible EPS; hard stop 18–20% below entry to limit execution risk from openings and tech rollout.
• Pair trade: Long GYM / Short PLNT (Planet Fitness, US: PLNT) — equal notional, 6–12 month horizon. Rationale: relative exposure to rapid, cash‑funded UK penetration and refurb-driven yield vs. US mid‑market sensitivity to discretionary spend. Expect 200–300bp relative outperformance; exit if spread compresses to historical mean or macro discretionary indicators (consumer confidence, payrolls) deteriorate sharply.
• Buy suppliers of gym equipment & energy optimization: Long Technogym (BIT: TGYM) — 9–18 months. Exposure to faster refurbs and new site rollout increases capex on equipment and energy systems; target total return 20–40% if rollout sustains. Keep position light (2–4% portfolio) and monitor order flow disclosures and FX risk.