Berenberg lowers target price on the Gym Group

Analysts at Berenberg slashed their target price on fitness centre operator the Gym Group from 290.0p to 180.0p on Friday and said it was "staying on the sidelines" as far as the stock was concerned.

Berenberg downgraded the Gym Group to Hold in November 2020 as it felt that like-for-like revenues could take longer than expected to rebuild to 2019 levels, which it said would, in turn, have "a large impact" on earnings given the level of operational gearing in the business.

"While the valuation has become more sensible since then, we still struggle to have conviction on the outlook, particularly while the company is reducing its disclosure of certain KPIs," said Berenberg.

The German bank also said it was taking the company's capital markets day targets of underlying earnings of £95.0m-105.0m and pre-tax profits of £40.0m-50.0m with "a pinch of salt".

"We think the company can certainly grow EBITDA as it continues to open more gyms. However, our only gripe is that management has refused to say how many gyms it will deliver this from. In other words, it could reach the target by ramping up capex and opening significantly more gyms than current guidance – which may look less impressive if the unit economics have not returned to 2019 levels," said the analysts, who reiterated their 'hold' rating on the stock.

Reporting by Iain Gilbert at Sharecast.com