LONDON (ShareCast) - (ShareCast News) - Barclays Research upped its target on shares of Gym Group from 230p to 250p following its first acquisition since the group floated, purchasing 18 gyms from Lifestyle Fitness.
On the downside, the transaction was seen diluting the company's overall return-on-capital-employed, with 20% expected from the deal versus a target EBITDA ROCE of 30% on those sites which it added organically.

There were also potential integration risks which management might have to navigate.

Offsetting those were numerous potential positives, including adding a year's-worth of organic growth "instantly", significant earnings accretion on a per share basis, and attractive rents on the new sites which should bolster EBITDA.

Hence, Barclays retained its 'overweight' stance on the stock, adding that the EBITDA ROCE on offer was still attractive, while highlighting that by buying assets the company would reach cash payback more quickly than if it opted to build out organically.

An annual compound growth rate in the company's earnings before interest, taxes, depreciation and amortisation of 24% for fiscal years 2016 to 2019 was also "highly attractive".

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