Berenberg upgrades The Gym Group to 'buy'

Analysts at Berenberg upgraded their stance on The Gym Group from 'hold' to 'buy' on Monday and hiked their target price on the stock from 121.0p to 180.0p, stating the company was "in good shape".

Berenberg said The Gym Group had "a tough 2023", with a substantially reduced number of site rollouts, fairly underwhelming growth and significant margin deterioration.

"We therefore entered 2024 happy to wait for signs of improvement in the business," said Berenberg.

The German banks stated The Gym Group's recent H1 trading update had left it feeling "encouraged" that the group was in good shape.

Furthermore, Berenberg stated its analysis suggested there was still "significant white space" to grow into, that cost pressures were subsiding and that there was scope for potential shareholder returns as the business continues to generate cash.

"The business is very cash-flow-generative and we estimate cash conversion from EBITDA pre-expansionary capex of 60%. With new sites fully funded through FCF, we estimate leverage will fall to the bottom end of the target range, leaving scope for shareholder returns," it concluded.

Reporting by Iain Gilbert at Sharecast.com