Fitness Chain Will Initiate Dividend Payouts And Share Buybacks In 2025 To Benefit Shareholders

Key Takeaways

• SATS anticipates robust revenue growth by enhancing product offerings and improving member yields, capitalizing on post-COVID recovery trends.
  
• Strategic investments and operational efficiencies in Sweden and equipment usage are poised to improve margins and boost future earnings.
  
• High competition and rising overhead costs threaten revenue and margins despite ongoing investments and economic variability in key markets.

Catalysts

Provides fitness and training services in Norway, Sweden, Denmark, and Finland.

• SATS anticipates revenue growth driven by successful yield initiatives and increased product offerings, including enhancements to group training and expanded capacity within the existing portfolio. This strategy aims to capitalize on post-COVID recovery trends, particularly in areas like personal training, likely boosting future revenues.
  
• The company plans to execute a dividend payment and share buyback program starting from 2025, leveraging its strong liquidity position and comfortable leverage ratio. These capital allocation strategies are poised to enhance shareholder returns, potentially raising earnings per share (EPS) in the future.
  
• By adjusting the depreciation period for equipment and utilizing them longer, SATS expects to lower maintenance CapEx requirements over time. This operational efficiency is likely to positively impact net margins by reducing capital expenditures related to equipment over the coming years.
  
• Strategic investments in Sweden, particularly in group training, are expected to drive member growth and improve margins. SATS is following a proven investment strategy that was successfully implemented in Norway, suggesting potential margin improvements in the Swedish market over the next 12 to 18 months, boosting future earnings.
  
• With a focus on yield-enhancing strategies and leveraging list price increases for new memberships, SATS anticipates sustained improvement in the average revenue per member (ARPM). This ongoing effort to enhance member yield is expected to contribute to robust revenue and earnings growth in forthcoming periods.

Sats Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sats's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 10.0% in 3 years time.
• Analysts expect earnings to reach NOK 578.3 million (and earnings per share of NOK 2.85) by about February 2028, up from NOK 285.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, down from 20.3x today. This future PE is lower than the current PE for the NO Hospitality industry at 20.3x.
• Analysts expect the number of shares outstanding to grow 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.

Sats Future Earnings Per Share Growth

Risks

• The company faces high competition across markets, especially from new low-cost capacity opening, which could potentially erode revenue and market share.
  
• There is a slowdown in membership growth in Sweden, compounded by market uncertainty, which could impact revenue.
  
• Ongoing investments in the Swedish market to boost growth might pressure margins and profitability if they don't yield the desired outcomes.
  
• Fluctuations in overhead costs that are growing faster than club operational expenses could pressure net margins if not managed carefully.
  
• Economic variability in post-COVID personal training market areas could impact revenue growth beyond primary business operations.

Valuation

• The analysts have a consensus price target of NOK29.75 for Sats based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK5.8 billion, earnings will come to NOK578.3 million, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 10.2%.
  
• Given the current share price of NOK28.3, the analyst price target of NOK29.75 is 4.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.