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Transcript of SWS Investment Liu Connie
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Life Time Fitness (LTM)Andrea Lucido, Jennifer Qiao, and Connie Liu
Yale University
smart woman securities11/7/2010
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L ife Time FitnessOverview
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L ife Time Fitness: Ticker: LTM Fast-growing, resort-like recreation center 12 month target price: $64 71% upside from most recent closing
Snapshot of Stock Pitch
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R eason 1: LTM targets niche market R eason 2: Fast growing health and fitness
industry R eason 3: LTM's unique services gives it
competitive edge over peersR eason 4: Undervalued compared topeers
Investment Thesis
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Industry: High-end, health and wellness industry W hy high-end = attractive now ?
E conomic downturn increased free time of
the affluent without decreasing their spendingpower by much W hy fitness center = attractive now ?
Obsession with fitness and body image: bothfemales and males, from teens to adults
National epidemic in obesity, diabetes, andheart diseases leads to increasing attention to
health
Industry Overview
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LTM Overview C E O and founder: Bahram Akradi
Ex pansive selection of premiumamenities and services from childcare centers to cafes
89 centers in 1 9 states As of Dec. 31, 200 9 :
$8 37 million in revenues17,400 employees
C losing Price (11/3/2010): 37.77Market cap: 1.53B
Average 3-month trading volume:36 8 ,964Forward P/ E : 16.27
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LTM E conomic Model
Attracting large membership base within first threeyears after new center is opened, and retaining thosemembers and maintaining tight e x pense control
R evenue growth: 9% , 200 9 R evenue: $8 37 MillionE BITDA growth: 9% , E BITDA: 240.0 millionNet Income growth: 1 % , Net Income: $72.4 millionNo required long-term member contracts, providemembers fle x ibility
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Ex perienced senior management team
C omprehensive and convenient programs andservices A value proposition that encouragesmembership loyalty
LTM C ompetitive Strengths
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Investment Details
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Fast Growing Industry
LTM is situated in a strong, continuouslygrowing industry
I ncreasing risk of disease related to obesity, mediapresence, national health trends
Exp enses % of Readers NOT willing toCut Exp ense out of Budget
Gym Membership 4 8%
Ex tra C ar 35 %
Premium C able 30 %
E ating Out 41 %
Big vacations 27 %
Sporting E vents 13 %Source: Money Magazine, 200 8
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Fast Growing IndustryIm p act of Media
Increased awarenessof e x ercise as anintegral component tohealth and fitnessFree promotion frompublications to tabloidse.g. Journal of
American Media
AssociationC onstant reports onnew research,prominent celebrities
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Fast Growing Industry
National TrendsGrowing consciousness with staying healthyR elated industries also show increase insales, e.g. organic foods consumptionU.S. sales of organic food and beverageshave grown from $1 billion in 1 99 0 to $24. 8
billion in 2009
.Sales in 200 9 represented 5.1 percent growthover 200 8 sales.Source: Orga nic T rade Associ at ions 2010 Orga nic In du s try S urvey
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Projected Industry Growth
29% growth rate from 200 8 to 201 9
Health club memberships projected to reach 50 million by 2010 i.e. 25 %
growth rate from 20063From 2004 to 200 8 :
Memberships of U.S. health clubs increased 10 %
U.S. health club industry revenues increased 2 9%
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Mission:To p r ov i de a n edu c at ion al, e n terta inin g, f r i e ndly, inv i t ing, f unc t ion a nd inno vat i ve
ex p er i e nc e of uncomp r omisin g qual i ty that meet s the health a nd fi t ne ss n eed s of the
e n t i re f a mi ly
Not Just a Gym
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Family-Oriented C hild centers, family lessons, summer
camps Family Membership Plans
C ommunity-Oriented
Involved in wide range of communityevents e.g. L ife Time Fitness Triathlon,Healthy cook-offs U.S. Women'sTriathlon series, R ace to Toyota C up
Not Just a Gym
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R esort quality: L ife Spa and Salon L ife C afe Ex perience L ife Magazine Indoor and outdoor swimming and
golfing facilities Squash and rock climbing facilities
Not Just a Gym
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E ducational Personal trainers L ife L ab: personal health and fitness
assessments Group fitness programs
Nutritional Seminars
Not Just a Gym
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Niche Market Targeting
Affluent are increasing their lu x ury and discretionaryspending
2010 Survey of Affluence and W ealth in America:
6-8% increase in lu x ury spending since 2007Higher-income individuals are enjoying benefits of their wealth
0 2 4 6 8 10 12
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Niche Market Targeting
Provision of value-added services is attractive toaffluent
65 % say they have become smarter shoppers W e have t wo c hoic e s. W e c a n redu c e due s , c ut
p r ic e s l ik e everyb ody el s e, a nd c ut s erv ic e s a nd p r ogra ms...Ins tead, w e have de ci ded t o add value no t by c utt ing pr ic e s , but by add ing pr ogra mmin g
Bahram Akradi, C E O, 3Q C onference C allL ife Time Bucks
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Family-oriented approach is attractive at thistime
C h i ldre n's opinions are p lay ing a greater r o le in the f a mi ly 's d isc ret ion ary sp e nd ing Dr. Taylor, Vice- C hairman of the Harrison Group, which conducted affluence survey
Value-price additional services for children of
membersSummer programs for children provideincreased seasonal revenue
Niche Market Targeting
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Discounted C ash Flow
Based on Discounted C ash Flow, 71 % upside fromclosing price of 37.77To be more conservative, 47 % upside from closingprice
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L ife Time Fitness vs. Peers
Price/E arnings
Price/ProjectedE arnings
Price/ Book Price/ Sales
L ife TimeFitness 17.7 9 15.34 1. 83 1.67
Peers 31.65 27.45 6.30 3.03
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Member attrition rates historically high C oncerns about overcrowding 2010 key goal to reduce attrition
Potentially low liquidity due to large size of branches
C ash flow
Too high-end for many consumersC oncentration of branches in theMinneapolis region
Investment R isks
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Fast growing, competitively strongcompany in fast growing industry
12 month target price: $ 6471 % upside from most recent closing
R ecap
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Q&A