Viva Leisure Limited (ASX:VVA): A Compelling Case for Undervaluation and Long-Term Growth Catalysts

In the dynamic landscape of the leisure and hospitality sector, Viva Leisure Limited (ASX:VVA) emerges as a standout opportunity for investors seeking undervalued growth stocks. With a 30% year-over-year revenue surge to $211.3 million in FY2025 and a membership base exceeding 620,000, the company has solidified its position as Australia's second-largest fitness operator, according to the FY2025 earnings highlights. Yet, despite these robust fundamentals, Viva Leisure trades at a 41% discount to its intrinsic value, as estimated by a two-stage DCF analysis. This analysis explores the convergence of industry tailwinds, operational excellence, and valuation mispricing to build a compelling case for immediate investment.

Intrinsic Value Analysis: A 41% Undervaluation

Viva Leisure's intrinsic value, calculated using a DCF model, stands at AU$3.06 per share, starkly contrasting with its current market price of AU$1.81. The model assumes a 12% discount rate, derived from a levered beta of 2.000 (aligned with industry comparables), and a conservative terminal growth rate of 3.1%-consistent with long-term GDP projections. The company's free cash flow projections, bolstered by a 127.7% growth in the Technology, Payments, Licensing & Services (TPLS) segment reported in the earnings highlights, further justify these assumptions. Notably, the DCF-derived valuation diverges from the company's trailing P/E ratio of 35.35, which exceeds both the peer average (27.6x) and the global hospitality industry average (22.1x). This discrepancy suggests the market is underappreciating Viva Leisure's high-margin tech-driven revenue streams and scalable franchise model.

Industry Trends: Fitness as a Core Pillar of Wellness

The fitness sector is undergoing a paradigm shift, with consumers increasingly viewing memberships as essential rather than discretionary. Global data reveals a 6% rise in memberships in 2024, alongside an 8% revenue increase and a 4% expansion in fitness facilities, as noted in the earnings highlights. Viva Leisure is uniquely positioned to capitalize on these trends. Its Vivapay platform, which drives high-margin TPLS revenue, exemplifies the sector's pivot toward digital innovation. Meanwhile, the broader hospitality industry is integrating fitness and wellness offerings to meet demand from health-conscious travelers. The global wellness market, projected to reach $7.3 trillion by 2025, underscores the long-term potential for companies like Viva Leisure to diversify into premium wellness experiences.

Operational Performance: Strategic Execution and Capital Efficiency

Viva Leisure's FY2025 results highlight disciplined execution. The company's statutory EBITA rose 25.6% to $99.1 million, while pre-AASB 16 EBITA climbed 29.7%, according to the earnings highlights. CEO Harry Konstantinou emphasized a strategic focus on "network optimization and technology expansion," including the rollout of Vivapay and the onboarding of World Gym members. The CFO, Kym Gallagher, outlined plans to reduce growth capital expenditures to $11 million in FY2026-a 20% cut from FY2025-to prioritize free cash flow generation and debt reduction. These moves signal a shift toward a capital-light model, enhancing shareholder returns through buybacks and dividends while maintaining growth momentum.

Reconciling Valuation Discrepancies: Why the Gap Exists

The disconnect between Viva Leisure's DCF valuation and its P/E ratio can be attributed to market skepticism about the sustainability of its high-growth trajectory. However, the company's 172 secured locations for future openings and its focus on high-return initiatives-such as franchise buybacks-demonstrate a clear path to scaling profitably, as outlined in the earnings highlights. Additionally, the DCF model's conservative terminal growth rate (3.1%) and alignment with industry benchmarks mitigate concerns about overvaluation. Analysts at Alpha Spread corroborate this, estimating a fair value of AU$1.80 (a 3% undervaluation) using a base-case DCF model. These findings suggest the market is underestimating Viva Leisure's ability to convert its operational momentum into long-term shareholder value.

Conclusion: A Mispriced Opportunity in a High-Growth Sector

Viva Leisure Limited presents a rare combination of undervaluation, strong operational performance, and alignment with transformative industry trends. With a 41% discount to intrinsic value and a strategic roadmap emphasizing technology, sustainability, and capital efficiency, the stock offers compelling upside potential. For investors willing to look beyond short-term volatility, Viva Leisure represents a high-conviction opportunity to participate in the evolution of the global wellness economy.