November 23:
Market update looked quite positive to me. Key points for me below.
It seems like the business is being pivoted back to its DNA, which is low cost, large format, corporate owned gyms. With the competitive advantage being scale and lower cost of capital than nearly all its direct competitors.
It's simple maths. Acquire on 3-3.5x EBITDA, which equates to somewhere between 5-8x FCF once you factor in maintenance capex. If your WACC is below this, you can exploit the arbitrage. If VVA are acquiring at 8x (a 12.5% FCF yield) and are borrowing at around 10% in a worst-case scenario, they should do well.
Probably trading at around 10x underlying FCF at the moment, Which is probably about right.
August 23:
Results were well received by the market. I think they were ok, but the boutique fitness offering are struggling and I think they need to get more disciplined.
There's a few figures figures which I found interesting from the results. First FCF:
Subtracting all lease repayments, PPE and intangibles expenditure from operating cashflow a (probably harsh because some of it is genuine greenfield capex) I get FCF being $3.7 mil at the absolute lowest.
Using the most dovish assumptions you could get as high as about $9 mil in FCF (subtracting the $3.2 mil in tech spend from FCF shown above.)
The other thing that's interesting is PBT on a pre vs post AASB basis.
My understanding (correct me if I'm wrong) is that AASB 16 means that the annual increases in rent under the leases VVA has signed are "Straight Lined" and then discounted at an incremental borrowing rate, so the future increases in rent are actually factored into todays NPAT figure.
Given the amount of Capex that VVA has undertaken, I'd expect FCF to exceed NPAT going forward.
Sticking with the same valuation for now.