Stock of the day: Viva Leisure

(AI video summary)

This video was created on 18 December for IG audiences by ausbiz.

ASX code: VVA

Viva Leisure's expansion into international markets

Viva Leisure, a prominent player in Australia's gym industry, is making significant strides by expanding its Plus Fitness brand into the United Kingdom (UK). This move is part of a master franchise agreement, with the first location set to open in 2025. The agreement spans ten years, with options for two additional ten-year terms.

This expansion reflects Viva Leisure's broader strategy to tap into international markets. Despite the announcement, the company's stock has seen a slight decline, highlighting the challenging nature of the gym industry.

Challenges and opportunities in the gym industry

The gym industry is notoriously tough, with a saturation of locations and intense competition. Viva Leisure has streamlined its offerings, focusing on the Plus Fitness brand while acquiring a 25% stake in World Gym.

This strategy positions Viva Leisure as the second-largest gym operator in Australia (AU), behind Anytime Fitness. The franchise model allows individuals to own and operate locations, providing a scalable business model for international expansion.

However, the industry's challenges, such as low return on equity and significant debt, remain hurdles for growth.

Financial outlook and market sentiment

Viva Leisure's expansion efforts are commendable, but financial concerns persist. The company's share price has been stagnant, with recent announcements failing to drive significant growth.

The gym industry's saturation, combined with economic factors like the cost of living crisis, impacts consumer spending on gym memberships. While some view gym memberships as essential, others may consider them discretionary, especially during economic downturns.

Despite being covered by only two brokers, Viva Leisure's valuation appears attractive, with solid growth projected for 2025 and 2026. However, it is suggested investors adopt a cautious approach, holding the stock while monitoring the company's ability to deliver earnings growth in the coming months.