Health Awareness And Digital Solutions Will Expand Club Networks

Key Takeaways

• Growth is driven by rising health trends, technology expansion, and a diversified approach targeting younger demographics and new market segments.
  
• Operational streamlining and cross-selling of technology and services improve margins, free cash flow, and reduce financial risk through disciplined expansion.
  
• Shifting consumer habits, integration risks, high fixed costs, heightened competition, and demographic or economic pressures threaten long-term growth, margins, and earnings sustainability.

Catalysts

Operates health clubs.

• Viva's exposure to rising health and wellness awareness is driving consistent growth in its membership base (now over 620,000, nearly 3% of the addressable Australian population), supporting robust recurring revenue and reducing sensitivity to economic downturns-likely to drive sustainable top-line revenue growth.
  
• The company's technology and payments division, benefiting from the rapid digitisation of fitness and wellness, is scaling rapidly (tech revenues up 127%) and poised for further high-margin growth as products like Viva Pay, door access licensing, and data analytics are rolled out across a much larger club and franchise network-expanding earnings and net margins.
  
• Urbanisation and demographic changes, with an emphasis on attracting Gen-Z members whose habits reinforce long-term demand, position Viva's multi-brand, multisegment footprint to benefit from secular shifts-supporting ongoing organic growth and franchise expansion that should underpin future revenue and EBITDA uplift.
  
• Optimisation of the existing club network, by prioritising high-performing locations and closing or repurposing underperforming assets, is expected to improve operational efficiency and increase net margins, while the capex-light franchise rollout leverages demographic tailwinds and reduces balance sheet risk.
  
• The company's scale, capital discipline, and ability to cross-sell technology and ancillary services (including expanding digital advertising and in-club vending) provide multiple growth levers and diversification, likely to support high free cash flow generation and margin expansion as the market continues to consolidate.

Viva Leisure Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Viva Leisure's revenue will grow by 10.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.5% today to 8.2% in 3 years time.
• Analysts expect earnings to reach A$23.4 million (and earnings per share of A$0.24) by about September 2028, up from A$5.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 28.1x today. This future PE is lower than the current PE for the AU Hospitality industry at 35.2x.
• Analysts expect the number of shares outstanding to decline by 1.99% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.53%, as per the Simply Wall St company report.

Viva Leisure Future Earnings Per Share Growth

Risks

• Growing digitization and adoption of at-home and virtual fitness solutions risks eroding the long-term demand for physical gym memberships, potentially leading to slower membership growth and, ultimately, pressured revenue streams for Viva Leisure if consumer fitness habits shift significantly.
  
• Over-reliance on aggressive acquisition and network expansion strategies could expose Viva Leisure to integration risks and the possibility of acquiring underperforming assets; if these integration efforts fail or acquired gyms don't deliver expected synergies, this could drag on earnings and compress net margins.
  
• High fixed operating costs resulting from an extensive physical club footprint and long-term lease commitments may become a liability in the face of adverse economic cycles or shifting consumer preferences, increasing the risk of operating losses and reduced net margins if utilization falls.
  
• Increased competition from both budget and boutique fitness providers, as well as digital disruptors, may force Viva Leisure to lower pricing or increase investment in member experience and technology, leading to margin pressure and muted top-line revenue growth if scale advantages are not sustained.
  
• Demographic changes, especially potential declines in gym participation among certain age groups, and economic pressures that force consumers to cut discretionary spending, may reduce Viva Leisure's addressable market and weigh on long-term organic revenue growth and earnings sustainability.

Valuation

• The analysts have a consensus price target of A$2.575 for Viva Leisure based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.4, and the most bearish reporting a price target of just A$1.75.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$287.0 million, earnings will come to A$23.4 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 11.5%.
• Given the current share price of A$1.5, the analyst price target of A$2.58 is 41.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.