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Basic-Fit N.V. (AMS: BFIT) - One Pager
“The European Budget Gym”
This write up was done in collaboration with Inbox Alpha. 99.99999% of the work/research was done by Inbox Alpha, I just put couple of final touches.
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Basic-Fit N.V. is the leading budget fitness club operator in Europe, growing to over 1,268 clubs and 3.6 million members today, with €794.6 million in FY 2022 revenue, €203.6 million in FY 2022 EBITDA, and around €120 million in FY 2022 FCF. It’s on track to bring in €1 billion in revenue in 2023, while growing its club count by an additional 200 by the end of the year.
Basic-Fit – which originated in the Netherlands and grew out into Belgium, Luxembourg, France, Spain, and now Germany – has essentially taken the Planet Fitness Model in the U.S. and implemented it with great success in Europe. Only across most of Europe the actual fitness club membership penetration is far lower than in the U.S. Countries like France, Spain, Germany, and Belgium have fitness club penetration rates that range from as low as 8% to 14%. Compare this to the U.S., where budget gym penetration is roughly 21% in most areas, and Planet Fitness alone captures around 5% of the total U.S. population.
This is what Basic-Fit is trying to capitalize on. It was started, and is still led by its founder – former Dutch tennis pro Rene Moos. He still holds the largest stake in the company, at 14.3%, and essentially pioneered the budget fitness club model in Europe.
Basic-Fit’s strategy involves clustering its clubs, which means it typically goes into a new geographical area and opens up 4 or 5 clubs at one time. Because of the nature of its customers – who are typically new fitness club-goers and average joes instead of fitness enthusiasts – this helps in locking in the most potential customers as quickly as possible. But this doesn’t mean that Basic-Fit is careless with its capital allocation. Much to the contrary, the researching, building, and opening of a new club is really one of the company’s core competencies. Management doesn’t franchise, and has become adept at opening clubs quickly. They also don’t consider entering into an agreement to build a club unless they think they can generate a 30% ROIC.
The club building strategy is really Basic-Fit’s main growth driver. It only spends about 6% of its revenue on marketing. The company – more than anything – grows its membership base by building a web of clubs across Europe. This is one of its main value drivers. It has been successful with upselling customers from the Basic membership package (€19.99 a month) to the Comfort (€24.99 a month) and the Premium Membership (€29.99 a month) primarily on the promise that the member will be able to access any one of the 1,268 clubs across Europe. The prime locations are the marketing, and the convenience and simplicity (there are only weights and cardio equipment in the average 4,000-5,000 ft2 club) are the main value drivers for new members.
Basic-Fit is a ~€2 billion company, trading at a trailing P/FCF of around 15x and an EV/EBITDA of about 13x, all while generating over 20% in FCF ROE, and growing by 51% in the latest quarter. Over the medium-to-long-term, Basic-Fit plans to grow to 2,650-3,200 clubs and 15 million members in the countries it’s already entered. If Basic-Fit can achieve this growth it’s possible investors could be looking at a ~5x return given consistent margins and a market multiple of 15x.
Essentially, if Basic-Fit can generate €400,000 in Underlying EBITDA per club (which is lower than what it estimates mature clubs can generate), it will probably be able to bring in around €619 million in annual FCF. This doesn’t even take into account expansion into other countries, a wide-scale increase in gym membership penetration in Europe, or the positive impact on margins of Basic-Fits ongoing transition into more efficient operation (from an already low 3 employees per club to 1 or 0, as a result of state-of-the-art club monitoring systems).
Basic-Fit isn’t without its issues though. It had a tough time during COVID, considering its clubs suffered complete closure during much of 2020 and part of 2021. The company even had to issue shares during 2021 to raise capital (slightly diluting shareholders). In addition, while I believe it has been a necessary use of capital, Basic-Fit has issued around €730 million in debt that puts it at risk of defaulting on its covenants if it ever runs into serious short-term trouble. The growth estimates above also rely on potential growth to 600 clubs in Germany – a market that Basic-Fit has just recently entered, and one in which it will probably face its stiffest competition.
Overall, though, Basic-Fit is a company that’s focused on growth, has a great runway with limited competition, and generates impressive returns on capital. On top of that, the market it’s expanding across is still relatively untapped. Management has a history of executing, and are implementing initiatives (like the real-time camera monitoring and membership package upsells) that will increase efficiency and margins, regardless of whether it reaches its growth targets. Investor sentiment has been growing recently, and Basic-Fit looks like it’s on track to meet its growth targets for 2023.
If you enjoyed this, Inbox Alpha has a much deep dive into Basic-Fit on his website, click here to check it out (its 26 pages long!)
At the time of this publication, Inbox Alpha does not owns shares in Basic-Fit N.V. (AMS: BFIT) but they are considering while I (YZ) don't.
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