The market for affordable gyms and fitness centres is a curious one – while there has been phenomenal growth in demand in recent years, there has also been a certain amount of nervousness with the dark cloud of recession hanging over the sector.
But LA Fitness, led by the overly enthusiastic South African chief executive Fred Turok and his finance director Richard Taylor, are bullish about what the future holds.
Taylor, a chartered accountant, recently negotiated a #90m five-year debt facility with Allied Irish Bank, Barclays and Royal Bank of Scotland, which the company plans to use to open around 20 clubs each year ‘for the foreseeable future’.
In its last trading statement, the company said business had remained strong and was in line with expectations with like-for-like sales growth of 9% during the year.
Certainly, its interim results looked very shapely. Turnover was up 78% to £21m, with operating profits standing at £3.7m, up 59%. But there is still a question mark over the sector.
Duke Street Capital has taken over Esporta, and there is a possible management buyout at Holmes Place, which would leave LA Fitness and Fitness First as the only quoted gym chains. Share prices have tumbled, but the company is well on course to have more than 70 clubs under its belt by July 2003.
It has even opened up a sweatshop in Spain.
However, some analysts are tipping LA Fitness as a ‘buy’, saying its shares looked undervalued.
This is perhaps because the company is not targeting the premium end of the health club market – positioning itself as a high street brand.
The market’s reaction will be watched closely when it passes judgement on the fitness of the sector as well as the company.
Mark McMullen joins the private client services team from Smith & Williamson
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