Digital Fitness Revolution Will Expand European Urban Markets

Key Takeaways

• Accelerated club maturation, digital innovation, and urban-focused expansion are driving faster-than-expected growth in revenue, membership, and operational efficiency.
  
• Enhanced capital returns, premiumization, and broader wellness trends position Basic-Fit for structurally higher margins and shareholder payouts beyond consensus forecasts.
  
• Growth prospects are threatened by digital fitness trends, rising costs, mounting debt, intensified competition, and challenging demographics that limit market expansion and profitability.

Catalysts

Engages in the operation of fitness clubs.

• While analyst consensus expects the ramp up in club openings and transition to 24/7 clubs to only gradually benefit revenue and margins, the outsized membership growth seen in early 2025 and data showing accelerated post-COVID club ramp-ups strongly suggest that the positive financial impact could arrive faster and with greater magnitude than current forecasts for revenue and margins in 2026 and beyond.
  
• Consensus focuses on a €40 million buyback and improved capital efficiency, but with club maturation accelerating and free cash flow inflecting sharply by 2026 as over 90% of clubs become mature, Basic-Fit could rapidly scale buybacks or even initiate a progressive dividend, significantly boosting earnings per share and capital returns beyond expectations.
  
• The company's continued investment in proprietary digital technology and smart refurbishment is enabling much greater operational efficiency and lower long-term maintenance capex, which is poised to compress cost ratios and unlock structurally higher net margins over the coming years.
  
• The combination of expanding into densely populated urban regions in Spain, Germany, and France and leveraging cluster-based 24/7 access could allow Basic-Fit to outpace competitors as urbanization accelerates, supporting sustained double-digit membership growth and higher average revenue per member.
  
• Broader societal trends towards preventive health, wellness, and digital fitness adoption-combined with Basic-Fit's premiumization efforts and ability to monetize ancillary revenue streams-create substantial runway for higher lifetime member value and margin expansion, which is underappreciated in today's stock price.

Basic-Fit Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Basic-Fit compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Basic-Fit's revenue will grow by 15.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.7% today to 12.2% in 3 years time.
• The bullish analysts expect earnings to reach €228.2 million (and earnings per share of €3.24) by about July 2028, up from €8.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.2x on those 2028 earnings, down from 217.2x today. This future PE is lower than the current PE for the GB Hospitality industry at 216.6x.
• Analysts expect the number of shares outstanding to decline by 0.19% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.16%, as per the Simply Wall St company report.

Basic-Fit Future Earnings Per Share Growth

Risks

• The accelerating shift in consumer preference toward digital fitness and at-home workout solutions may limit the long-term demand for traditional gym memberships, constraining Basic-Fit's ability to sustain revenue growth as this secular trend undermines brick-and-mortar footfall.
  
• Rising operational costs driven by energy price inflation, new sustainability investments, and stringent regulatory requirements-such as the need to staff 24/7 clubs in France due to legal restrictions-are likely to increasingly pressure net margins and dampen future earnings growth, especially if membership gains do not fully offset the added expense.
  
• The company's aggressive expansion strategy, involving high upfront capital expenditure and a significant increase in net debt to €938 million by year-end 2024, raises the risk of overleveraging, leaving Basic-Fit vulnerable to higher interest expenses and refinancing challenges, which could negatively impact net profit and free cash flow in a higher rate environment or during any market downturn.
  
• Intensifying competition from boutique fitness studios and specialized wellness concepts, alongside ongoing urbanization that raises the cost and complexity of securing attractive club locations, may erode Basic-Fit's market share and weaken same-club revenue growth, ultimately threatening both top-line growth and returns on invested capital.
  
• Demographic trends in key European markets, such as an aging population and a declining youth demographic, may shrink the traditional gym addressable market over time, potentially leading to market saturation and lower average club membership, which would put downward pressure on Basic-Fit's long-term revenue and mature club EBITDA targets.

Valuation

• The assumed bullish price target for Basic-Fit is €32.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Basic-Fit's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €32.0, and the most bearish reporting a price target of just €19.8.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €228.2 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 10.2%.
• Given the current share price of €26.38, the bullish analyst price target of €32.0 is 17.6% 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.