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BFIT - Basic Fit


Arski
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Came across this company through a tweet of TIKR.

 

Basic fit operates low cost fitness clubs in the Netherlands, Belgium, Luxembourg, France and Spain. It already has 831 clubs (july 2020) with 1,250 clubs target for 2022 and 100 club openings planned for 2020 alone.

 

Revenue growth over the past 5 years of 26%, with current headwinds from covid of course. Which resulted in revenue down 17.6% and is expected to generate 680m sales in 2021 (60% increase from 2020) and 326m EBITDA, which results in a forward EV/EBITDA of 10.2.

 

Although Basic Fit is quite popular in the Netherlands with more than 200 clubs, which is double of their biggest competitor: Fit for Free. Basic fit isn't the cheapest fitness club over here, but has a good brand name. Fit for free is also €20 per month (€18 per month for 2 years). Wouldn't say they have a direct advantage above Fit for free except the total number of gyms.

 

I tried to find which big fitness operations were in France but couldn't find clear evidence of any (not even BFIT), yet. France is definitely one of their biggest growth potential, even as is Spain.

 

Maybe someone has more insight into the Spanish and French fitness market? Which competitors there are, to come to a conclusion if they really have a cost advantage and how Basic Fit is known in France (if they are widely known and/or popular already)?

 

Great source: https://www.valueinvestorsclub.com/idea/BASIC-FIT_NV/4769962046

A great quote from VIC:

"The economics of the business are quite straight-forward. Basic-Fit builds a gym for €1.2m on average, of which ~€300k is spent on the fitness equipment. The primary direct operating costs (excluding marketing) are labor (BFIT gyms operate with just 2.5 average full-time employees), and rent, which together constitute ~2/3 of per-gym opex. Historically, new gyms have reached breakeven at around 1,700 members, a level typically reached within 5 months of opening, and matured to a level of ~3,300 members and 50% contribution margins within 24 months. At the current ~€21 / month ARPU, and including ~4% of revenue spent on marketing this implies annual EBITDA of ~€360k per gym, or a 30% cash-on-cash return. Including maintenance capex (~€55k per gym per year) and taxes, this results in a ~19% unlevered after-tax return. In recent years, BFIT has been funding a significant portion of this development activity with debt that costs ~2%. Needless to say, borrowing at 2% to invest at 19% is a pretty favorable dynamic for equity returns."

 

Only didn't see a lot of negative aspects about BFIT in the write-up and no deep dive on competitors.

 

A totally different opinion could be that they don't really need to have a direct advantage. If they can just scale, keep operating costs low and membership fee low and still establish a lot of members and therefore still make good money.

 

Please let me know if I'm missing some important things.

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Great way to get exposure to a post-vaccine normalization of daily activities.  Much safer than betting on a return of travel/leisure as we still don't know what that recovery looks like (share shifts among means of transport - air, train, auto, urban vs rural, etc.).  The gym subscription model as we know exactly what that looks like.  Just turn the subscription spigot back on.  Much better line of sight to this kind of revenue.

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Great way to get exposure to a post-vaccine normalization of daily activities.  Much safer than betting on a return of travel/leisure as we still don't know what that recovery looks like (share shifts among means of transport - air, train, auto, urban vs rural, etc.).  The gym subscription model as we know exactly what that looks like.  Just turn the subscription spigot back on.  Much better line of sight to this kind of revenue.

 

I am long BFIT, but I think a little patience will be required.  BFIT can turn on the spigot, but the water may trickle out rather slowly at first.  The customers are the ones who decide when they're comfortable returning, and some will take longer.  But in the mid to longer term, it looks very good.

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I don't know what their plan is after 2022, but if all goes to plan (and it doesn't require a lot of external factors which have to go right) BFIT could be a great long-term compounder. After filling France and Spain with fitness clubs they probably are going to look for new markets, like Italy, Portugal or other nearby countries.

 

Basic Fit has historically reached break-even in 5 months of building gyms (1,700 members) and within 24 months become a mature club (~3,300 members). By the way, I haven't fact checked this yet but if it's true than we just have to answer two questions to determine whether BFIT is also able in the future to get great returns on investment.

 

1) How able is BFIT to get break-even in 5 months (or maybe a little longer) with new clubs in France, Spain and future markets (Italy for example)?

 

2) How able will BFIT be to get a mature club in ~24 months in those markets?

 

The most important things we need to know for these questions:

- Competition:

      Will people go to BFIT first or prefer a competitor because it might be cheaper or they prefer more a luxurious fitness club?

 

- The fitness market of a country

      How many people are going or willing to go to a gym?

      BFIT was able in the Netherlands to get people to the fitness clubs while they didn't go at first. Are people going to respond the same way in other markets?

 

- Other factors:

        Is it more difficult to replicate their model in other countries because of different regulations?

        Are there more costs of building new clubs (building, fitness machineries, personnel) in other countries, where they want to expand?

 

I don't think the success of Basic Fit depends on management because they have shown that they are capable of excellent execution.

 

If we could get detailed answers on these questions, we will be able to determine whether BFIT will be a long-term compounder.

 

Please let me know if I missed some important factors or whether you think I'm totally wrong. Thanks!

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I was a little too optimistic about the EBITDA for coming year it would be more like $250 million which would result in a forward EV/EBITDA of 13.2x, which is still quite compelling I think. (Not investment advice)

 

I looked over the main competitor of BFIT in France. It is Fitness Park with 215 gyms. Also €20 per month and no low membership advantage for BFIT but still think they will make good profit on their future ~1,000 fitness clubs in France.

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