In Part 1, I said I own Basic-Fit because I like the economics of the clubs it already has, and that I’ve kept the position small because I’m less sure what happens to the cash those clubs throw off. This piece is about that cash.

A quick recap, in case you missed the first part. The market values Basic-Fit’s full gyms at roughly what it would cost to build them empty. Basic-Fit runs its clubs more cheaply than smaller rivals and uses that to open several clubs in the same town, and the density makes it harder for anyone else to make money there, which in turn protects the low costs. The McFit clubs it bought in Spain also suggest that a gym can earn a lot more once it carries the orange sign.

On my numbers, the network now generates about €200 million a year before any growth spending, and that figure should keep rising as younger clubs mature. Basic-Fit can open new clubs with it, buy competitors, pay down debt or buy back its own shares. In Part 1 I promised you a return on each of those, and the chart below is the result.

New clubs come out on top at about 15%. Buying more of the existing estate, which is what a buyback amounts to, implies about 12%, and paying down debt saves under 4% after tax. Acquisitions have by far the widest range: anything from about 13% down to a loss, depending on how far the clubs Basic-Fit buys end up earning what its own clubs earn.

How I compare them

Three of the four options buy operating assets: a new club, someone else’s club, or a bigger slice of Basic-Fit’s own estate. For those three I estimate the after-tax return on the money invested, after overhead and maintenance, over a long club life. A buyback fits that frame as long as debt stays at roughly the same level relative to earnings, because you’re then buying a slice of the whole business, clubs and borrowings together. It works much like a landlord buying out a co-owner: same buildings, same mortgage ratio, a bigger share of the rent. At €28.48 a share, Friday’s close, the implied return on the existing estate is about 12%. That is the hurdle every other use of cash has to clear.

Paying down debt earns a different kind of return. What you get is the interest you no longer pay, which is smaller but predictable, and it lowers risk at the same time. It’s on the chart, but I don’t pretend it is the same measure as the other three.

Management and I agree on the first call on cash, which is new clubs. After that we part ways. At the Capital Markets Day in April, Basic-Fit put acquisitions second, the balance sheet third and the “potential to return capital to shareholders” last, and its record fits that order. In December 2024 Impactive Capital, then the largest shareholder, publicly asked for €100 million of buybacks a year. One million shares were bought back for €26.2 million in 2025, then the programme stopped, and since then about €250 million has been committed to Clever Fit, wellyou, Speedfit and Kraftwerk.

New clubs

Basic-Fit says it only signs a lease for a new club if it expects a return on invested capital of at least 30% at maturity, measured at club level before overhead. The model uses a slightly lower 28%, which on a €1.47 million club still works out at about 15% after overhead, maintenance and tax, and the share price would have to fall by about a third before a buyback did better. Every good site Basic-Fit can find deserves the money. The constraint, however, is the sites themselves: management guides to 50 to 70 openings a year, and the cash it generates is already well beyond what that many openings need.

What the acquisitions have to do

Acquisitions are where most of my disagreement with management sits. When Basic-Fit bought 47 clubs from RSG Group in Spain in 2024, 42 of them McFits, management said the total cost per club, including rebranding, would be “not much more than the normal new rollout.” It also targeted a return on invested capital of at least 30% by 2026. At the Capital Markets Day it reported revenue up 43%, underlying EBITDA up 52% and average members per club up 60%.

Management clearly expects to do it again. For Clever Fit, bought for €160 million plus up to €15 million of earn-out, its presentation shows the EBITDA multiple falling from 11-12x on 2024 earnings to an expected 3-6x by 2027. Much of that price, in other words, rests on profits that hadn’t been earned yet when the deal was signed.

On wellyou, bought at 5.3x 2025 club EBITDA, Moos told analysts in July that “their average ARPU is much lower than ours,” and put the cost of rebranding at about €250,000 a club. For Speedfit and Kraftwerk, the company “expects their profitability to converge with the Group’s average.” I wanted to turn that word, convergence, into a return.

The 67 clubs agreed this year cost about €1.41 million each once rebranding is added to the €1.16 million purchase price. That is a little less than a new club, and they come with members already signed up, but they do not come with Basic-Fit’s earnings. What they earned before the deals hasn’t been published, so I’ve had to estimate it: about €95,000 a year after rent, taking wellyou’s €239,000 of club EBITDA and deducting a rent I put at around €145,000. It’s the number I’m least comfortable with in this piece, and exactly the kind of figure I have asked Basic-Fit to publish.

From that starting point I model three outcomes. If the clubs fully converge, they end up earning what an average mature Basic-Fit club earns at club level, about €350,000 a year after rent, and the acquisition returns roughly 13%. (New clubs are bigger and cost more, so I model them at about €410,000 at maturity.) If only half the gap closes, earnings reach about €225,000 and the return drops to about 8%. If nothing improves, the club stays at about €95,000 and the return is -3.7%.

Full convergence beats the 12% buyback hurdle, then, but only by about a point, while half convergence falls four points short. At €28.48 a share, an acquired club needs to reach roughly €325,000 of EBITDA less rent in my model just to match buying more of the existing estate. That bar moves with the share price. At around €55, a deal that only half converges would earn the same as a buyback, so my preference for buybacks is a view about today’s price, and I would change it if the price changed enough.

McFit is harder to place on that scale than it looks. Management’s 30% target for the Spanish deal implies at least full convergence. The reported 52%, however, is an increase in EBITDA before rent. Apply it to a wellyou club, with €239,000 of EBITDA and about €145,000 of rent, and you get roughly €220,000 after rent, which is half convergence. I don’t take that to mean McFit disappointed. Its clubs started from a different base than wellyou’s, and the figures were published about two years after the deal, so this is an illustration and not an estimate of what McFit actually earns. So which is McFit closer to, full or half? The evidence published so far can’t tell, and that’s the gap the scorecard I’ve asked for would close.

Debt and buybacks

Net debt excluding leases was €1.06 billion at the end of June. If Basic-Fit chose to repay some of it, I would expect the money to go first against its floating-rate bank debt, €795 million of loans and revolving credit, which I estimate costs around 5% a year before tax, or about 3.7% after. That is the return on repaying it: certain, which is worth something, but low enough that the shares would have to trade at about four times today’s price before repaying debt beat buying them back.

Some debt reduction still makes sense to me. Both of the paths modelled below bring net debt down to 2.0x EBITDA less rent in 2027, which seems a reasonable amount of caution. Beyond that, I find it hard to argue for repaying more debt at under 4% when the existing estate offers about three times as much.

At today’s price a buyback sits about three points below a new club and about four above an acquisition that only half converges. I’m not arguing for buybacks instead of growth. My point is narrower: cash that can’t go into new clubs, or into deals that clear the 12% hurdle, should go back to shareholders instead of sitting on the balance sheet or being spent on a token programme. And given how uncertain the acquisition numbers are, I would want a deal to beat the hurdle by a clear margin before preferring it.

There are two caveats. The case for buybacks weakens as the share price rises, so it partly undoes itself if it works. And the 12% assumes debt stays roughly in line with earnings, so it is not the return you would get from borrowing more to buy back shares.

How many deals Basic-Fit can do

Even with good deals on offer, there’s a practical limit on how many clubs Basic-Fit can find, buy and convert, while the cash it has to put to work keeps growing. Management hasn’t given an allocation budget, so I’ve built two scenarios of my own. In both, net debt is reduced to 2.0x EBITDA less rent in 2027 and then held flat in euros, and from 2027 Basic-Fit opens 60 clubs a year, the middle of its guidance. Under Path A, management pushes hard on deals: 20% of free cash flow goes to buybacks, and whatever is left after the new clubs goes into acquisitions. In Path B, acquisitions are capped at 70 clubs a year, roughly this year’s pace, and the rest of the cash goes into buybacks.

Path A runs into trouble before returns even come into it. To spend its cash, it needs about 130 acquired clubs a year, more than 1,100 over the decade. Basic-Fit bought 47 owned clubs in 2024 (RSG Spain), took on 23 owned clubs with Clever Fit in 2025, and has agreed 67 this year, plus 16 bought from a Clever Fit franchisee. Path A would need more than one and a half times this year’s pace, year after year.

The targets exist: only 16% of German clubs belong to a major chain, and management talks about “multiple acquisition options.” But it’s looking for small and medium-sized chains with similar clubs and room to improve EBITDA, which means deals of 20 to 50 clubs, so Path A would need three or four wellyous every year. Conversions take time as well. Moos said in July that Basic-Fit doesn’t change signs during the September-October and January-February sales periods, and that in Austria it has to wait for local permits: “it’s not in our hands.” Of the Clever Fit clubs bought in November 2025, the first two in Germany had been converted by July. Price is another worry, because Basic-Fit isn’t the only consolidator (VivaGym and AltaFit have merged in Spain), and a buyer that has cash to deploy tends to pay more. I would also expect the quality of targets to slip as the easiest ones get bought, although I can’t put a number on that.

That’s why Path B caps acquisitions at 70 a year, and why it’s worth looking at what happens to the cash that can’t find a deal. Left on the balance sheet, it costs shareholders about two points of annual return. Put into buybacks, it does no worse than Path A in any of my cases: the two paths come out level when acquisitions fully converge, and Path B does better when they don’t. Part of the reason is the small gap between a fully converging deal and the buyback hurdle. The other part is timing, because an acquired club takes three to four years to reach its target while a buyback cuts the share count straight away. Valued on actual 2035 cash flow, Path B even comes out ahead with full convergence; giving every club credit for its mature earnings, including the ones bought late in the decade, brings the two level, and that’s the basis I use in the table. So the limit on deal flow doesn’t worry me much in itself. If you own the stock, the thing to watch is surplus cash piling up, or management stretching for weaker deals to use it.

The ten-year model

I ran both paths to 2035 under the three convergence cases. At the end, the business is valued at today’s free cash flow yield of about 10%, with clubs that are still ramping up credited at their mature earnings, and buybacks along the way happen at that same yield. There’s no re-rating in these numbers.

Path B ends the decade with about 2,800 owned clubs against 3,200 to 3,400 in Path A, and with roughly 50 million shares instead of 61 million. Its free cash flow per share grows at about 13% to 16% a year. If the market paid 12.5x free cash flow at the end instead of 10x, you could add about three points to every figure. Without that, returns from €28.48 come out at roughly 12% to 17% a year. How well the acquisitions converge explains most of the spread, and the allocation path mainly decides how much a disappointment costs. The range is best used to compare the two paths; I wouldn’t lean on any single number ten years out.

My letter to the board

On 30 September I sent a one-page letter to Jan van Nieuwenhuizen, who chairs Basic-Fit’s Supervisory Board, through the company’s investor relations team. I haven’t heard back yet. When I sent it, I told Investor Relations there was no rush ahead of the Q3 update, so I don’t read anything into the silence. The full text is at the end of this piece.

It asks for an annual acquisition scorecard in the Annual Report or the full-year presentation. For each group of owned clubs Basic-Fit buys (RSG Spain, wellyou, Speedfit, Kraftwerk and whatever comes next), I’d like to see what it paid including rebranding, and members, revenue and EBITDA less rent per club before the deal and one and two years after rebranding. Clever Fit needs different treatment, because 454 of its 493 clubs at the Capital Markets Day were franchised; comparing its EBITDA with the expectation management gave in April would do the same job. The letter also asks for each group to be compared, after one and two years, with what Basic-Fit said when it announced the deal and with the return criteria the Board applies to acquisitions.

It makes no request for buybacks. That’s my own view at this price, and management (or you) can reasonably disagree with my assumptions. Published results would give both sides firmer ground: if the McFit approach works at scale, the scorecard will show it, and if some deals fall short, shareholders will know early. Whatever the reply, what Basic-Fit chooses to disclose about its acquired clubs over the next few reporting cycles will say more.

What would change my mind

Over the next few results, I’ll be watching whether wellyou, Speedfit, Kraftwerk and Clever Fit move toward Basic-Fit’s economics after rebranding. If they stay well short, the case for sending more cash to buybacks gets stronger. Purchase prices matter too, since higher multiples can absorb the gains from good integration, so I’ll compare each new deal with the buyback hurdle at the share price of the day. New clubs have to keep earning their place at the top of the list; if mature clubs stop reaching something close to a 30% club return, every comparison in this piece shifts. I’ll also be watching what happens to cash that can’t find a deal. A growing pile on the balance sheet, or deals that keep coming in below the buyback hurdle, would make me less confident in how Basic-Fit allocates its cash.

Where that leaves me

Basic-Fit doesn’t need acquisitions for the investment case to work. The existing clubs already generate the cash, and new clubs earn more than anything else on the list, which is why I’d set a high bar for buying other people’s clubs. Management doesn’t have to make every acquisition beat every alternative in every year. But if acquisitions are going to stay second in line for Basic-Fit’s cash, shareholders should be able to see what they earn, and that’s what the scorecard is for. For now, my position stays small.

À bientôt,

Guillaume

Disclosure: I own BFIT shares (small position). Figures and prices are as of 2 October 2026. This is not investment advice.

Appendix: the letter I sent on 30 September

To: Mr Jan van Nieuwenhuizen, Chair of the Supervisory Board, Basic-Fit N.V.

Subject: Proposal for an acquisition performance scorecard

Dear Mr van Nieuwenhuizen, dear members of the Supervisory Board,

I am a Basic-Fit shareholder and write The French Prophet, an independent investment newsletter. In preparing recent research, I have been in touch with Basic-Fit’s Investor Relations team, whose answers helped refine my analysis. I support the consolidation strategy presented at the April Capital Markets Day.

The case for the strategy is strong. After Basic-Fit acquired 42 McFit clubs in Spain, revenue rose 43%, underlying EBITDA 52% and average members per club 60%. The Capital Markets Day also showed the Clever Fit EBITDA multiple expected to fall from 11-12x on 2024 earnings to 3-6x by 2027. If that playbook is repeatable, bolt-on acquisitions can create substantial value.

My concern is that shareholders currently have little ability to test whether it is repeating. At announcement, we learn the purchase price, club and member counts, and sometimes an EBITDA multiple. After closing, the acquired clubs are absorbed into Group figures. The clearest disclosure of the McFit outcome came at the Capital Markets Day, two years after the transaction.

If the McFit playbook is repeatable, more systematic disclosure should strengthen management’s case for consolidation rather than constrain it.

I would therefore ask the Board to consider a simple annual acquisition performance scorecard, published in the Annual Report or full-year presentation, with two elements:

1. Cohort operating outcomes. For each group of owned clubs acquired (RSG Spain, wellyou, Speedfit, Kraftwerk and future deals), disclose the total consideration and rebranding capex, and members, revenue and EBITDA less rent per club for the twelve months before acquisition and at twelve and twenty-four months after rebranding. For Clever Fit, which is mostly franchised, its EBITDA against the Capital Markets Day expectation would do the same.

2. Performance against the original investment case. After one and two years, compare each cohort with what Basic-Fit said at announcement (purchase multiple, expected EBITDA or convergence with Group averages) and with the Board’s return criteria.

I appreciate that some figures may need to be aggregated where commercially sensitive. The objective is not to prescribe a particular acquisition strategy, but to make the outcomes measurable against Basic-Fit’s own return criteria.

Most of this information should already exist internally: management was able to present the McFit figures at the Capital Markets Day. If the playbook works at scale, the scorecard would demonstrate it and allow investors to assess the value created by the consolidation strategy. If some deals fall short, shareholders would see it early, together with how management is responding.

Would the Board consider such a scorecard for the 2026 Annual Report or full-year presentation?

For transparency, I write publicly about Basic-Fit and intend to publish this letter. I would not quote any reply without your agreement. I would be grateful if you could confirm that the letter has reached the Supervisory Board.

Yours sincerely,

Guillaume Kaminer

Sources

• Basic-Fit: Half-Year Report 2026 (including note 18, Borrowings); Capital Markets Day presentation (21 April 2026); press releases of 21 December 2023 (RSG Spain), 13 May 2025 (buyback), 1 July, 12 August and 10 September 2026; results calls of March 2024 and 28 July 2026.

• Impactive Capital, letter to Basic-Fit’s CEO and Supervisory Board, 19 December 2024.

• Market data as of 2 October 2026. Model: author’s.

In July, Basic-Fit (ticker: BFIT) told us what an empty gym costs. The 39 clubs it built in the first half of 2026 came in at €1.47 million each, against €1.38 million a year earlier. Bigger boxes, a new design, and plain construction inflation.

Now run the sum the other way. At €29.88 a share, Basic-Fit’s market value plus its net debt comes to about €3 billion, for 1,751 owned clubs. That’s roughly €1.70 million a club, for clubs that are open, branded, equipped and full: the average one has 2,999 members, about twice the level at which a Basic-Fit club breaks even. Take out the roughly €175 million the company paid for Clever Fit and it’s still around €1.6 million, before giving any value to the 441 franchised clubs.

Either these clubs barely earn their cost of capital, or the market is measuring them with the wrong tool. I think it’s the tool. Basic-Fit’s moat is poorly understood, and EV/EBITDA, the multiple most people reach for, can’t see it.

The cost structure competitors can’t buy

If you think low-cost fitness is one of the least defensible businesses in Europe, you’re in good company. The product is a room full of machines. Anyone can buy the machines, and anyone can rent the room.

What a newcomer can’t buy is the cost structure. Basic-Fit’s clubs break even at 1,400 to 1,500 members, a level the company calls “peer-leading” for big-box gyms. It runs one employee per shift and, where the law allows, no staff at night; France allowed it from May. It builds every club to the same blueprint, negotiates rent with the weight of 1,751 leases behind it, and buys equipment by the thousand. Marketing runs at about 5% of revenue, and the cost of signing a new member is down 9% since 2024.

And the price of getting in keeps rising.

Part of that increase is Basic-Fit’s own choice: bigger clubs and a new design. The rest is construction and fit-out inflation, which everyone pays. The difference is who already owns a network. Basic-Fit built most of its clubs at yesterday’s prices. A new entrant has to finance today’s.

Financing widens the gap. The ECB raised its deposit rate in June and again in September, to 2.50%. A sub-scale operator paying for a €1.5 million fit-out borrows at bank rates plus a premium for having no track record. Basic-Fit’s latest bond, issued in April, was a convertible with a 2.5% coupon, two thirds of its debt is at fixed rates, and it now pays for new clubs out of its own cash flow: €162 million before expansion last year, more this year.

Three clubs, one town

The cost advantage matters most because of what Basic-Fit does with it, and one slide from its 2024 investor presentation explains that better than I can.

A Basic-Fit club needs a catchment of at least 30,000 people. In a town of 100,000, Basic-Fit doesn’t open one club and wait. It fits out three at the same time, with catchments that overlap, so nobody in town is far from an orange door. Every member can use all three. The regional manager, the local marketing and the construction crew are shared.

Now look at it from the challenger’s side. People choose a gym mostly on how close it is. Wherever the new club goes, its catchment overlaps at least one Basic-Fit, usually two. The members who care most about distance are already signed up, and the rest have a cheaper club nearby. The newcomer needs more members than Basic-Fit to break even, in a smaller pool, having paid more to build. A new Basic-Fit club, meanwhile, signs more than 1,000 members in its first 30 days, a third more than in 2023.

The town isn’t full of gyms. It’s full enough that a fourth one doesn’t pay.

Basic-Fit doesn’t just have a lower cost base. The lower cost base lets it profitably occupy more locations in each town. Those extra locations shrink the pool left for the next entrant, whose break-even is higher to begin with. Cost advantage creates density, and density protects the cost advantage.

Construction inflation doesn’t create that loop. It makes the entrant’s side of it more expensive every year.

What the acquisitions tell us

The clearest evidence is who has been selling clubs to Basic-Fit this year, and at what price.

• In July, Basic-Fit agreed to buy wellyou: 41 clubs in northern Germany for €52 million, or €1.27 million a club.

• In September, it agreed to buy Speedfit, 18 clubs and “one of the larger independent fitness operators in Austria”, plus eight Kraftwerk clubs in Germany, for €26 million in total. About €1.0 million a club.

Both deals came in below the €1.47 million it costs to build a club from scratch, members included. The Kraftwerk clubs average about 1,250 members, below Basic-Fit’s break-even. Speedfit’s clubs average about 2,000.

You could read that the other way. If gyms change hands below replacement cost, a rival can buy capacity instead of building it, and the construction barrier falls away. That would be true if a club were worth the same in anyone’s hands. It isn’t, and Basic-Fit has already run the experiment at scale:

After buying 42 McFit clubs in Spain in 2024, Basic-Fit lifted revenue per club by 43%, underlying EBITDA by 52% and members per club by 60%.

Same buildings, same towns. New sign, new pricing, Basic-Fit’s systems. Management expects the same from this year’s deals: once Speedfit and Kraftwerk are rebranded, it says their profitability should “converge with the Group’s average.”

A gym is worth more with an orange sign on it than without one. The barrier isn’t the concrete. It’s the network that makes the same concrete earn more.

The bill that comes with it

There is an obvious problem with my argument. If construction inflation makes the moat wider, it also makes the clubs more expensive to maintain.

The treadmills, floors and showers replaced in year eight are the same ones you’d buy for a new club. You can’t count the first inflation as a moat and ignore the second.

Basic-Fit’s record here is mixed. Its 2023 annual report expected maintenance spending per club “to remain at around €55 thousand through 2030.” It was €58 thousand in 2024 and €60 thousand in 2025, and about €60 thousand is guided for 2026. Over the same period the build cost rose to €1.47 million, so maintenance fell from 4.5% of what a new club costs to 4.1%. I don’t love that gap, and it matters more as the estate gets older.

Some of it is by design. The 2025 annual report describes a component approach: base equipment depreciated over 12 years, replacement parts over six to eight, routine repairs expensed through operating costs. Part of the upkeep already sits inside EBITDA less rent. And at about 7% of revenue, Basic-Fit spends on maintenance roughly what The Gym Group does, and more than SATS (5.8%) or Smart Fit (4.8%).

The sums are modest too. Had maintenance kept pace with build costs, it would be about €66 thousand a club: around €11 million a year across the estate, 2.5% of this year’s guided EBITDA less rent. At €85 thousand, 40% above today’s level, the hit is about €44 million, a tenth. The moat survives its own maintenance bill, but anyone who extends the moat’s life in a model has to extend the bill with it. The piece I’d watch is the upkeep that runs through operating costs, which never shows up in the capex line and which Basic-Fit doesn’t break out.

Why EV/EBITDA can’t see this

Most of what I read on Basic-Fit comes down to one number. The bulls say about 6x EBITDA against 10 or 11x for peers, so it should re-rate. The bears say 6x is cheap because capex eats everything. I think both are arguing about the wrong line. Here’s where Basic-Fit’s EBITDA went in 2025, using only the company’s own figures.

Of every €100 of EBITDA, €25 was left before growth spending and €4 reached free cash flow.

Rent. Under IFRS 16, about €300 million of annual rent moves below EBITDA and €1.86 billion of lease liabilities move into enterprise value. Nothing about the business changes; the ratio does, and two chains with the same economics but different lease lengths end up on different multiples.

Maintenance. EBITDA never sends you the bill for replacing the treadmill. At Basic-Fit that bill takes 28% of EBITDA less rent.

Depreciation. Basic-Fit writes its clubs off fast, over about 12 years on average. That doesn’t touch EBITDA or cash, but it flattens reported profit, so the same stock looks cheap on EV/EBITDA, at 6.3x, and expensive on earnings, at more than 40x trailing.

None of these numbers says anything about durability, and durability is what a moat is.

Freeze the estate

A moat is what lets a company stop spending on growth without the cash flow melting.

So the test I use is simple: what does Basic-Fit earn if it never opens another club? About 90% of the estate is mature or will be by the start of 2027. On my numbers, free cash flow would be around €200 million in the first year and rise as the last clubs fill. For reference, the company’s own cash flow before expansion was €162 million in 2025, and this year’s guidance adds about €100 million of EBITDA less rent. At €29.88, that’s a yield of roughly 10% on the equity, for a network competitors can’t cheaply copy.

Basic-Fit won’t freeze, of course. New clubs earn mid-teens returns once mature, McFit shows acquired clubs can get close to that, and the runway is long: Basic-Fit holds about 6% of the German market, where only 16% of clubs belong to a major chain. Whether management captures that value, or gives some of it back through mediocre acquisitions while its own shares may be the better buy, is a separate question. Management ranks returning capital to shareholders last of four uses of cash. I’ll take that on in the next note, together with a letter I plan to send to the board.

What would change my mind

• Pricing. A low-cost moat is a cost moat, not pricing power: it holds only as long as Basic-Fit stays the cheapest. The metric that showed whether it was protecting that position was fitness revenue per member, which it stopped reporting separately with its H1 2026 results. I’d like it back.

• Integration. If wellyou and Speedfit don’t start to look like McFit once rebranded, the acquisition evidence above weakens. The first numbers come through in 2027.

• Maintenance against build cost. If the cost of a new club keeps rising while maintenance stays at €60 thousand, something is being deferred or moved into operating costs.

Next checkpoint: the Q3 trading update on 21 October.

Conclusion

The moat is real. The harder question is whether shareholders will capture all of it.

I own Basic-Fit because I like the economics of the existing estate. I haven’t made it a large position because I’m less certain about what happens to the cash that estate will generate.

Basic-Fit has four choices: open clubs, buy competitors, pay down debt, or buy back its own shares. At today’s price, I don’t think those choices are remotely equivalent.

That’s Part 2. I’ll put a return on each one—and then send one of the conclusions to Basic-Fit’s Supervisory Board.

À bientôt,

Guillaume

Disclosure: I own BFIT shares (small position). Figures and prices are as of 25 September 2026. This is not investment advice.

Sources

• Basic-Fit: Half-Year Report 2026; Annual Report 2025 (note 4.3); Annual Report 2023; Capital Markets Day presentation (21 April 2026); investor presentations (March 2024, March 2026); press releases of 1 July, 12 August and 10 September 2026.

• European Central Bank, key interest rates.

• The Gym Group, SATS and Smart Fit 2025 annual reports (maintenance capex).

• Market data as of 25 September 2026.

The one-paragraph version

Imperial Brands is one of the simplest ideas in the market right now. It is a mature tobacco business that throws off a lot of cash, returns nearly all of it, and keeps buying back stock at a rate that is hard to ignore. At the current run-rate, the company is set to return roughly £2.7bn to shareholders: about £1.27bn of dividends plus a £1.45bn buyback, against a market value of about £18.6bn at 2,443p. That is roughly a 14.6% shareholder yield. The shares are down hard in 2026, yet on 9 September CEO Lukas Paravicini said Imperial remains fully in line with FY26 guidance and made clear that the lower share price makes the buyback more effective. That is enough for me to stop waiting and publish the idea now.

Why this one has my attention

I am not buying Imperial because I think cigarettes are suddenly exciting. I am buying it because the capital allocation is. The company does not need to become a growth story for this to work. It only needs to keep turning a slowly declining profit pool into a large amount of cash, and then use that cash intelligently.

Most investors look at Imperial and stop at the first line: declining volumes, regulation, tobacco, not very fashionable. Fair enough. But if you stop there, you miss the part that matters. At today’s valuation, this company is shrinking itself fast enough that the share count can do a lot of the heavy lifting.

This is not really an earnings story. It is a denominator story.

Henry Singleton understood the basic idea better than almost anyone. At Teledyne he bought back enormous amounts of stock when he thought it was cheap. Buffett later reduced the lesson to one sentence: what is smart at one price is dumb at another. Munger put it even more memorably: “Pay close attention to the cannibals.” Buybacks are only as good as the price paid. At today’s valuation, Imperial looks much closer to the intelligent end of the spectrum.

The flywheel

This is the heart of the whole thing, and I think it is more powerful than many shareholders realise.

First, the buyback reduces the share count. That part is obvious.

Second, a smaller share count makes the dividend cheaper to fund in total, even if the dividend per share goes up. Imperial has already been showing this. The payout per share has risen, but the total dividend bill has barely moved because there are fewer shares left to pay.

FY22 → FY25: dividend per share 141.17p → 160.32p (+13.6%); total dividend cash £1.325bn → £1.314bn, essentially flat.

Third, the cash that no longer has to be spent paying dividends on retired shares stays inside the machine. That cash can help fund the next buyback. If the share price is still cheap, the next buyback retires an even bigger slice of the company. Then the dividend bill gets lighter again. And around we go.

Fewer shares → lower aggregate dividend cost → more buyback capacity → fewer shares again.

What the last few years already show

The nice thing is that you do not need heroic assumptions to see the mechanism. It is already there in the historical numbers.

From FY22 to FY25, dividend per share rose from 141.17p to 160.32p. Free cash flow moved from £2.562bn to £2.7bn, with a wobble in between but no real impairment to the cash engine. The share count has been shrinking by roughly 4.5% to 5% a year. Meanwhile the announced buyback stepped up from £1.0bn to £1.1bn, then £1.25bn and now £1.45bn.

That combination matters. Shareholders receive more per share. The company does not have to increase the total dividend bill much to do it. And the buyback itself has been getting larger. This is exactly the kind of setup I like: not flashy, just quietly compounding in the background.

The buyback has increased every year since the programme began. Source: Imperial Brands company results.

How long until I own the whole thing?

This is the calculation that made me want to write the piece in the first place.

Take 762.8 million shares outstanding, a share price of £24.43, and free cash flow of £2.7bn. Now make the assumptions deliberately boring. Assume free cash flow never grows. Assume the dividend per share rises by just 2% a year. Assume everything left after the dividend goes into buybacks. And assume the share price never rerates.

There is no multiple expansion in that model. No rescue from a heroic NGP success story. No assumption that management suddenly discovers a second growth engine. It is a very plain setup.

Even then, the arithmetic gets silly quite quickly. The falling share count makes the dividend bill lighter. The lighter dividend bill leaves more room for the buyback. The buyback retires a bigger percentage of the remaining company. At a constant 2,443p, the toy model runs out of shares during FY2035.

Except mine.

I am obviously not claiming that I will literally become the last shareholder of Imperial Brands. The point is to make the mechanism visceral. At today’s price, this setup cannot just continue indefinitely without forcing some other variable to move. Either the shares rerate, the buyback changes, the cash flow deteriorates, or management allocates capital elsewhere. But the current combination of cash, valuation and buybacks has a very short fuse.

Flat £2.7bn FCF, 2% annual dividend growth, all residual cash used for buybacks, and a constant 2,443p share price. Starting share count: 762.8m, the latest disclosed figure excluding treasury after the 8 September 2026 repurchase. The model runs out of shares during FY2035. Illustration, not forecast. Source: Author calculation.

Why I do not mind a weak share price

This is the part of the thesis that still feels counterintuitive, even after you understand it. I own the shares, so instinctively I want the price to go up. But Imperial is also buying every day on my behalf.

At around 3,300p, a £1.45bn buyback retires roughly 44 million shares. At 2,443p, the same £1.45bn retires roughly 59 million. Nothing has to improve in the operations for the buyback to become meaningfully more effective. The market is simply offering the company more of itself for the same money.

That is why I am not praying for a quick rerating. A cheap price is not the enemy of this thesis. For a while, it is the fuel.

More importantly, I no longer have to infer whether management thinks about the share price the same way. At the Barclays Global Consumer Staples Conference on 9 September, Paravicini said the lower price makes the buyback more impactful because Imperial gets more shares back for the same money. He noted that roughly 20% of the share count had already been retired since 2021 and expects this year’s programme to remove roughly another 6%. He also reiterated the evergreen buyback and strongly signalled another significant programme next year, while making clear that the Board still sets the amount annually.

Is Imperial actually leaning into the sell-off?

One thing I wanted to check was whether the buyback was behaving the way a rational cannibal should. It is easy to say that a lower share price makes a repurchase more valuable. It is another thing to keep buying when your own stock is falling.

So far, the answer is encouraging. From April through July, Barclays spent about £5.5m per trading day on Imperial’s behalf, at a weighted average purchase price of roughly 2,780p, and bought about 196,000 shares per trading day. In August, as the shares fell into the 2,600s and then the 2,500s, average spend rose to £7.5m per trading day and shares bought rose to about 287,000 a day. The average purchase price was about 6% lower, while cash deployed per day was roughly 38% higher and shares bought per day about 46% higher.

I would not overstate this. Barclays is executing the second tranche under an irrevocable, non-discretionary mandate, and daily purchases also depend on market volume and preset limits. There is another reason not to overread the next few weeks: only about £115m remains to be spent before the end of October, so the daily run-rate can fall materially from here without telling us anything about management’s view of the shares. Still, August is exactly what I want to see from a buyback programme when the stock gets cheaper.

There is an even cleaner way to see the benefit. The first £725m tranche bought 23.1m shares at an average 3,138p. The second tranche had already bought 22.4m shares by 8 September with roughly £115m still to spend. If that remaining cash were deployed around 2,443p, the same £725m would retire about 27.1m shares, roughly 17% more stock for exactly the same money.

Source: Imperial Brands RNS announcements; author’s calculations. April-July daily averages use total spend and total shares bought divided by all trading days in the period. Second-tranche figures are updated through the 8 September purchase. Remaining cash is assumed spent at 2,443p for illustration.

This is why I care much more about the price at which Imperial buys its shares than whether the share price makes me feel good today.

Is the business good enough to feed the machine?

This is the only question that really matters. Buybacks do not save a bad business. If the underlying cash engine is collapsing, all you are doing is concentrating yourself into a worse asset.

So far, Imperial still looks good enough. In FY25, Tobacco and NGP net revenue grew 4.1% at constant currency. Tobacco price/mix was up 5.4%, more than offsetting the volume decline. More importantly, the volume decline has actually been improving for three straight years: -7.1% in FY23, -4.0% in FY24 and -1.7% in FY25. Free cash flow was £2.7bn and cash conversion was about 97%.

That is all I need. I do not need a miracle. I need a business that remains cash-generative and reasonably stable while management keeps shrinking the share count at sensible prices.

Why the market is sulking in 2026

The first half of FY26 was weak, and I do not want to hand-wave that away. Tobacco and NGP net revenue grew only 1.8% at constant currency and adjusted operating profit only 0.6%. Australia has been messy because illicit tobacco is damaging the legal market. The US has been tougher at the value end. NGP is moving in the right direction, but not in a clean straight line. There is also the Delaware litigation bill and a less friendly currency backdrop.

All of that explains why the market is unimpressed. What it does not prove is that the capital-return story is broken. In the same September discussion, with the financial year almost finished, Paravicini said Imperial remains fully in line with FY26 guidance. He pointed to the Australian step-down beginning to lap, a more stable tariff backdrop and the usual second-half flow-through of pricing as reasons for confidence in the H2 acceleration. The standing guidance remains 3% to 5% adjusted operating profit growth at constant currency, at least high-single-digit adjusted EPS growth and at least £2.2bn of free cash flow. If that holds, the machine still has plenty to eat.

I had originally planned to wait for an October pre-close before publishing this. I no longer think that makes sense. Management has just addressed the central questions in public and, as I write this, Imperial’s financial calendar does not yet list an October trading statement; the next scheduled results announcement is 17 November. Imperial has historically issued an early-October pre-close, so one may still be added. But I am not going to sit on the thesis waiting for a date that is not set and may only be a short update anyway.

One of the scarier summer risks has also eased. The original German excise proposal contemplated a roughly €2 increase and an accelerated September implementation. Paravicini said the September increase is now off the table and the discussion for January is around €0.50 to €1.00. A €1 increase could still hurt volumes, but this is a much more manageable setup than the one investors were worrying about a few months ago.

The self-help story is getting more tangible too. Management now expects the Langenhagen exit and Taiwan disposal to deliver around £100m of annualised savings once completed in July 2027, with manufacturing excellence adding another roughly £25m on an annual basis by the end of this year. I am not putting those savings into the toy model. I like that they make the flat-FCF assumption harder, not easier, to disappoint.

NGP is helpful, but it is not why I own the stock

I do not need Imperial to win the global race in next-generation nicotine. In my head, that business is still optionality, not the thesis. Later in the conversation, Paravicini described a deliberately disciplined approach: wait until a category is established, enter where Imperial has a route to market, and do not waste shareholder money trying to create a market from scratch. European vape is already profitable. The recent Helwit acquisition cost an initial £39.8m and more than doubles Imperial’s existing modern-oral share in Sweden, while Black Buffalo gives it another targeted route into US oral nicotine. Great if those assets compound. I do not need them to rescue the valuation.

There is also a US duty-drawback opportunity that should begin to contribute meaningfully in the second half of FY27 and have a full-year effect in FY28. Management did not quantify it, so I assign it no value here. That is the kind of upside I prefer: visible, potentially useful, and absent from my base case.

What could go wrong

The bear case is not mysterious. The flywheel stops working if free cash flow starts shrinking faster than the share count. That could happen if pricing power weakens, if excise or regulation bites much harder than expected, if the Australian problem spreads, or if Imperial has to give up too much margin to defend its US position. It could also happen if management keeps buying back stock but the stock turns out not to be cheap.

Those are the risks I care about. Not the share price falling. The cash flow falling.

What I still want to see

The thesis does not need another trading statement to exist, but three things still matter.

• The FY27 buyback amount. Management has now strongly signalled another significant programme. It has not promised £1.45bn again, let alone a progressive increase. At today’s valuation, that number still matters enormously.

• The full-year cash numbers. I want FY26 free cash flow, leverage and cash conversion to confirm that the operating business is still feeding the machine.

• The operating detail. I want the US and Germany share dynamics to look controlled, Australia to stop getting worse, and NGP to keep moving toward profitability without swallowing capital.

The verdict

This is why I like the story. I do not need Imperial to become a different company for this to work. I do not need it to out-innovate Philip Morris, and I do not need some heroic terminal value. I need a business that keeps generating decent cash, a management team that keeps returning it intelligently, and a share price low enough that those repurchases create real value for the people who stay.

At 2,443p, Imperial is not far from that sweet spot. On the forward annualised dividend run-rate, the yield is about 6.8%. The buyback is roughly 7.8% of the current market value on its own. The dividend pays me while I wait. The buyback increases my ownership while I wait. And, slightly perversely, the market’s boredom helps rather than hurts me.

The September conference gave me enough to stop waiting. Management says the cash guidance still holds and the buyback remains an important lever. What I want now is the FY27 number.

I own the shares. My share count is not going down.

Disclosure

I own shares in Imperial Brands. This article reflects my personal research and opinions and is not investment advice. The projection above is a thought experiment designed to illustrate the mechanics of a shrinking share count; it is not a forecast.

Source note: Operating figures and capital-return figures are drawn from Imperial Brands annual reports, FY25 results and HY26 results. September management comments are paraphrased from CEO Lukas Paravicini’s 9 September 2026 Barclays Global Consumer Staples Conference webcast on Imperial Brands’ investor-relations site. Daily buyback figures, current share count and programme progress are drawn from Imperial Brands RNS announcements; buyback charts are the author’s calculations. Market price used: 2,443p, the 9 September 2026 close. Shares in issue excluding treasury shares: 762.8m after the 8 September purchase. Second-tranche spend through that purchase: approximately £609.9m, leaving approximately £115.1m.

Disclosure: I initiated a position in Copa Holdings (NYSE: CPA) shortly before publishing this article. Forward estimates in this article are my own.

In the second quarter, Copa Holdings (NYSE: CPA) paid 85% more for jet fuel than a year earlier. It does not hedge. Operating margin fell from 21.7% to 8.7%.

Then it raised fares and kept growing.

Yield rose 8.7%. Capacity rose 16.5%. In July, load factor reached 89.7%. The shares, meanwhile, fell more than 20% from their June high to $126.45 at the end of August.

If you think you already know how this airline story ends, look at July.

I bought Copa for one reason: the current fuel shock is testing the Panama network in real time, and so far the network is repricing faster than the market seems to believe. The risk is equally simple: 46 incoming MAX deliveries could turn a good airline into an ordinary one.

THE INVESTMENT IN ONE SCREEN

• Quality: 22.6% operating margin in 2025 - more than three times the global airline industry - and a three-year ROIC averaging 16.7%.

• Fuel test: Roughly 64% of the higher guided fuel cost is already reflected in guided unit revenue.

• Valuation and risk: The middle of my 2027 range produces roughly $17-$21 of EPS, or about 6-7x earnings; 46 incoming MAX deliveries could push capacity beyond what the network can absorb.

I listened to eight consecutive earnings calls, from Q3 2024 through Q2 2026, and read the filings, traffic releases and Investor Day material alongside them. The calls matter because last year’s ROIC tells you what the old fleet earned. They tell you how management behaves when Boeing is late, Argentina gets over-served, fuel doubles and forty-odd aircraft are still coming.

A seller can make a coherent case. Copa’s recent margins benefited from a supply-constrained post-Covid region. Fuel has now delivered the first serious stress test in years and quarterly margins collapsed into single digits. Management responded by raising 2026 capacity guidance from 11-13% to 14-15%. That is exactly how good airline economics usually end: strong returns invite capacity, capacity weakens pricing, and the industry gives the economics back.

I think that reading misses what is happening underneath the headline margin.

The quality is real. The cash cost of growth is too.

Copa earned $818.9 million of operating profit in 2025 on $3.62 billion of revenue, a 22.6% operating margin. Applying the company’s 13.4% effective tax rate gives $709 million of NOPAT. I define invested capital as equity plus borrowings plus aircraft lease liabilities and, deliberately, I do not subtract the cash pile. On average 2024-25 invested capital of $4.73 billion, I get a 2025 ROIC of about 15%.

Even allowing for those basis differences, the gap is hard to miss. Copa finished 2025 above LATAM and IAG, and its 22.6% operating margin was a little more than three times the IATA estimate for the global airline industry.

Margins are only the first test. The harder question is whether those profits survive the capital required to produce them.

Copa does not rank first, and that is useful context. LATAM screens higher, while IAG and Ryanair are also excellent operators. What stands out is Copa’s floor: on this deliberately conservative measure, ROIC never fell below 15% in any of the last three years.

Keeping cash in invested capital matters. Netting out liquidity pushes ROIC above 20%, but an airline cannot sensibly run without a large buffer. Fuel shocks, recessions, airport closures and aircraft groundings are not theoretical risks. Some of that cash is operating capital in disguise.

ROE was stronger again: $671.6 million of net income against average equity of $2.57 billion, or about 26%. This is not leverage pretending to be quality. Copa finished 2025 at 0.6x adjusted net debt/EBITDA.

Cash conversion is less glamorous. Operating cash flow was $1.15 billion in 2025, but aircraft purchases, pre-delivery payments and intangibles consumed about $953 million. Free cash flow after all aircraft investment was only $197 million by my calculation. In 2024 it was about $501 million and in 2023 about $443 million.

The next aircraft matters more than last year’s ROIC.

Copa can still compound value while consuming capital. It simply has to earn a high enough return on the capital it keeps putting back into the fleet. That is a harder test than pointing to one year’s accounting margin, and it is the test 2026 is starting to answer.

The moat is the hub

Calling Copa the Panamanian flag carrier is technically correct and economically misleading. Panama is too small to explain the airline. The product is connectivity between other cities in the Americas through Tocumen.

Source: Copa Holdings, 2025 Investor Day.

Panama lets Copa aggregate thin demand across a network that has been built up over decades.

Copa says the hub offers nonstop or one-stop service across more than 5,000 city pairs. At Investor Day, management showed that about 80% of the origin-destination combinations in its network have fewer than 20 passengers a day in each direction. Those markets are usually too thin to support convenient nonstop service.

Panama solves the density problem. Copa can collect passengers from dozens of origins, connect them through one banked hub, and redistribute them across dozens of destinations. The aircraft are replaceable. The accumulated network is not.

A third-party OAG schedule analysis of about 120,000 Copa flight frequencies makes the pattern more concrete. In the 9M26 schedule, 69% of routes were Copa-exclusive. Among the 67 routes where frequency was increasing, 82% were exclusive and Copa’s ASM share was about 88%. On the routes where capacity was being cut, its share was closer to 53%. Competitor capacity was also falling on the contested routes where Copa was adding seats.

Those route statistics are useful; the calls show how management behaves when conditions change. Argentina became one of Copa’s strongest markets, competitors piled in, and yields softened. Pedro Heilbron did not argue that the moat made supply irrelevant. He said Copa would not be growing there as much as it had over the prior year. That is the behavior I want from an airline manager: move the airplane.

Panama also keeps the operating model simple. At June 30, all 131 aircraft in the fleet were Boeing 737 variants. One narrowbody family covers most of the Americas from a centrally located, sea-level hub. Crew training, maintenance, spare parts and scheduling are simpler than at a multi-fleet network airline.

That simplicity shows up in ex-fuel CASM: 5.8 cents in 2025 and 5.7 cents in 2Q26 despite the 16.5% capacity increase. Copa gets much of the revenue opportunity of a connecting network while retaining a relatively simple narrowbody cost base.

Panama’s tax regime helps too. Income from Copa’s foreign operations is generally outside Panamanian income tax, while traffic originating or terminating in Panama is taxed under the local rules. The consolidated effective tax rate was 13.4% in 2025. That tax treatment amplifies the returns already created by the network.

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What the next aircraft cost

This is where the story becomes dangerous. At Investor Day, Copa showed 46 MAX deliveries scheduled from 2026 through 2029. In April 2026 it added another 40 firm MAX orders plus 20 options for 2030-34. An order book is not a moat. It is a claim on future capital.

Across the last eight calls, the near-term deliveries look less frightening. In Q3 2024, Boeing delays forced Copa to plan less growth than management thought demand could support. By Q1 2025, management described the airline as “tight in capacity.” When deliveries caught up, much of the 2026 growth was not speculative route creation: management said about half came from the full-year effect of capacity already added in 2025, around 10% from new destinations, and the rest mainly from extra frequencies and utilization.

Management has since raised the 2026 plan to 14-15%, so the old 11-13% decomposition cannot simply be copied forward. What matters is that management re-explained the higher number after the raise rather than changing the story. Boeing delivered earlier, utilization improved, and demand was still there.

Fleet flexibility is better than the gross delivery count suggests. Older 737-700s can be retired instead of sent through expensive heavy checks. Leases can roll off. Delivery slide rights exist. Aircraft can be sold. Copa’s Investor Day downside case showed how an 8% planned fleet CAGR through 2029 could fall toward 2.5% if demand weakened.

Newer aircraft also improve the economics. MAX 8s drive most of the near-term capacity increase in the OAG schedule work and burn materially less fuel than the 737-800s they replace or supplement. Gallons per ASM are improving even while the headline fuel price gets worse.

Management has aircraft coming. It also has exits.

That does not guarantee discipline. The 2030-34 order tells us management believes the runway is long; it does not tell us management is right. But so far the evidence looks more like delayed growth being unlocked than airplanes searching for somewhere to fly.

The fuel test

Copa does not hedge fuel. In 2Q26 the all-in fuel price jumped from $2.32 to $4.28 per gallon. Fuel expense more than doubled, and operating margin fell into single digits. The pass-through mechanism is therefore visible in almost real time.

Q2 was messy because many tickets had been sold before the shock. Copa still lifted RASM 7.9%, raised fares sharply and kept ex-fuel unit costs essentially flat. Management estimated that higher revenue recovered about 40% of the incremental fuel cost during the quarter.

Full-year guidance tells a cleaner story. In February, Copa guided to $2.50 fuel, 11.2-cent RASM and a 22-24% operating margin. By August, fuel guidance had risen to $3.60 and RASM to 12.0 cents, while the operating-margin range fell to 17-19%.

Using recent fuel burn per ASM, the $1.10 increase in guided fuel price adds about 1.25 cents of fuel cost per ASM while RASM guidance rose 0.80 cents. That puts implied full-year pass-through at about 64%. Fleet mix and stage length move the exact figure, but most of the shock is already showing up in higher unit revenue.

Booking timing gives pricing more room from here. Management said only about 20% of Q3 had been sold before the fare increases and almost none of Q4. By the August call, around 75% of Q3 and 25% of Q4 were sold. Management also described competitors as showing “a lot of discipline” after fuel moved.

Then came July: capacity +16.2%, traffic +17.4%, load factor 89.7%. Heilbron said that near-90% load factor was being achieved in a higher-yield environment.

A high load factor alone proves very little. You can fill an airplane by cutting the fare. What matters here is the combination: capacity is up, yield is up, RASM is up, and utilization remains high.

There is upside if fuel falls and some of the pricing sticks. Management argues that yields entered the shock below 2019 levels even before adjusting for inflation. I do not need that outcome in the base case, but it creates an interesting asymmetry: high fuel gives Copa more time to reprice; lower fuel could restore margin faster if fares are slow to give back.

Self-help between the aircraft

Some of Copa’s improvement does not require another airplane. Direct and NDC channels reached 89% of sales by Investor Day, up from about 60% in 2022, while sales-and-distribution expense per ASM fell about 30%. That is self-help, not a fuel-cycle gift.

Ancillary revenue grew at a 34% CAGR from 2019 to 2025 versus about 4% capacity growth between those endpoints. The base was small, so I would not turn Copa into a loyalty-program story. Still, more revenue per passenger is exactly what a capital-intensive business needs.

Copa is also densifying the 737-800: more seats per aircraft while keeping a conventional business-class cabin and Economy Extra. Lower unit cost without abandoning the premium product.

A bigger operational change arrives in March 2027, when Tocumen moves from six daily connecting banks to eight. Management calls the change a RASM improver and a CASM detractor. The denser schedule should create more connection options and improve aircraft utilization, but it adds schedule complexity and cost. The economic test is whether the revenue gain beats the CASM drag.

Tocumen also has physical headroom. The airport is adding gates and apron/runway capacity alongside the bank redesign. A growth thesis built around one hub needs the airport to keep up.

Reliability is part of the product too. Copa reported 90.75% on-time performance in 2025. At a connecting carrier, a late inbound is not merely irritating; it can break two legs of the itinerary. The hub only works if the banks connect.

This is what the cash is for

Copa ended 2Q26 with $1.54 billion of cash and investments and adjusted net debt/EBITDA of 0.9x. An unhedged airline in a fuel spike should be holding cash. This is what the cash is for.

Aircraft commitments are still real. At year-end 2025, contractual aircraft and engine commitments net of discounts and PDPs were $0.2 billion for 2026, $0.5 billion for 2027, $0.9 billion for 2028 and $0.4 billion for 2029, with more thereafter. Copa finances aircraft through a mix of operating cash flow and long-term aircraft financing.

Copa’s dividend policy targets up to 40% of the previous year’s underlying consolidated net income, subject to Board approval. The current annualized payment is $6.84 a share. That exact payment should not be assumed for 2027 because the 2026 fuel hit flows into the next dividend decision.

Earnings and operating cash flow cover the payout, but free cash flow after today’s heavy aircraft investment does not. That is acceptable while the growth capital earns good returns. It becomes a problem if the new fleet is merely keeping reported growth alive.

Copa repurchased $45 million of stock in Q1 and then stopped as the fuel environment deteriorated. I read that as prudence. Fuel had just become the dominant uncertainty, the airline remained unhedged, and dozens of aircraft were still being funded. Preserving liquidity in that moment is consistent with the balance-sheet discipline that makes Copa unusual in the first place.

Two variables, not one

My first valuation pass made Copa look cleaner than it really is. I used a 22% 2027 operating margin, which produced about $21 of EPS. The arithmetic worked. The assumption was hiding in the margin: with 12-cent RASM, a 22% margin effectively needs fuel around $3.20 a gallon.

It was a fuel forecast wearing a margin assumption.

For an unhedged airline, the honest way to underwrite the earnings is to put fuel and RASM on the page together.

For the table below I assume 39.7 billion 2027 ASMs: 2025 actual capacity, 14.5% growth in 2026 at the midpoint of guidance, then 7% in 2027. Ex-fuel CASM stays at 5.7 cents, fuel burn is 1.14 gallons per 100 ASMs, net financial expense is $50 million, the tax rate is 13.5%, and the share count is 41 million. Those operating assumptions are mine.

Six times earnings is one cell, not the thesis.

I start the RASM columns at 11.6 cents rather than 2025’s 11.2. Copa already guides to 12.0 cents for 2026 at $3.60 fuel. If fuel remains $4-plus into 2027, continued repricing is more plausible than an immediate return to pre-shock fares.

That 6x outcome now sits where it belongs: visible and conditional. At 12.0-cent RASM and $3.20 fuel, I get about $21.2 of EPS. At Copa’s current $3.60 fuel assumption and the same RASM, the model gives $17.3 and 7.3x earnings. If repricing pushes RASM to 12.4 cents at $3.60 fuel, EPS rises to $20.7 and the multiple falls to 6.1x.

This is why the equity can still work without a heroic multiple. Depending on the RASM/fuel combination, plausible normalized cases sit in a wide band. The market is not offering a free lunch. It is offering a cheap claim on the spread between unit revenue and fuel.

I do not know which cell we will land in. I do not think I need to. Enough of the middle of the table works for me.

Every 0.1 cent increase in ex-fuel CASM costs about $0.84 of EPS in this model, all else equal. The eight-bank redesign therefore has to earn its keep. So do the aircraft.

If Copa can grow earnings at a healthy rate and return a meaningful share of profits, a static 7-8x multiple can still produce attractive shareholder returns. A rerating is optionality.

What breaks it

One ugly quarter does not break the thesis. A sustained change in the operating evidence would.

Boeing concentration sits on top of all of them. All 131 aircraft are 737s. Fleet simplicity is a cost advantage until a technical or regulatory problem affects the family again.

That is why I bought the stock. The operating evidence still points the right way: Copa is adding a lot of capacity, charging more, and filling the airplanes. Management has also shown that it will pull back when a market gets crowded. The balance sheet gives it time to be patient.

I do not need Copa to become a wonderful business. I need it to remain a good one.

If the Panama network can keep repricing fuel, absorb 6-8% long-term capacity growth and earn something close to mid-teens incremental returns, the valuation does not need much help from multiple expansion. If it cannot, RASM and load factor should tell us before reported ROIC does.

The next aircraft matters more than last year’s ROIC.

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Sources and notes

Source integrity: Reported figures are traced to company or regulatory sources where available. The route-level schedule statistics are third-party calculations built from OAG data. Forward estimates are my own.

Results and latest traffic evidence: Copa Holdings - 2Q26 Financial Results; July 2026 Traffic Statistics.

Audited financials, tax, cash flow, debt, aircraft commitments and fuel policy: Copa Holdings - 2025 Form 20-F.

Network density, fleet flexibility, distribution, ancillary growth and hub infrastructure: Copa Holdings - 2025 Investor Day.

OAG-based 9M26 route and schedule analysis - third-party calculations using approximately 120,000 Copa flight frequencies.

Original earnings calls, Q3 2024 through Q2 2026: Copa Holdings - Earnings-call archive.

Fleet composition: 2025 Form 20-F; 2Q26 Financial Results.

April 2026 order for 40 firm 737 MAX aircraft plus 20 options: Copa Holdings - 1Q26 Financial Results.

February versus August 2026 guidance: 4Q25 and FY2025 Financial Results; 2Q26 Financial Results.

2025 on-time performance: Copa Holdings - 4Q25 and FY2025 Financial Results.

FY2025 airline operating-margin comparison - primary sources: Copa | LATAM | IAG | Ryanair | Delta | United | American | Southwest | IATA

Three-year ROIC comparison - my calculations from the companies’ annual reports and filings. Methodology: reported operating income after tax divided by average equity plus interest-bearing debt plus lease liabilities; cash is not deducted.

$45 million share repurchase: Copa Holdings - 1Q26 Financial Results.

Valuation model: assumptions are my own; company operating inputs are calibrated to reported 2025/2026 capacity, fuel burn, guidance and share count. Primary calibration source: Copa Holdings - 2Q26 Financial Results.

This article is for research and discussion, not investment advice. Airline earnings are highly sensitive to fuel, demand, capacity, foreign exchange, regulation and aircraft availability. My estimates may be materially wrong.

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Helios Towers is not a telecom operator. No phone plans. No spectrum. No smartphones. It does not even own the radio equipment that sends the signal.

Instead, Helios owns the boring part: the towers.

And sometimes the boring part is where the money is made.

A mobile operator needs towers to provide coverage. But owning towers is capital-intensive, operationally messy, and inefficient if every operator builds its own mast in the same location. The better model is shared infrastructure. One company owns and operates the tower, and several mobile network operators rent space on it.

That is the towerco model.

In developed markets, tower companies such as American Tower and SBA Communications became extraordinary compounders for a simple reason. The first tenant pays for most of the economics. The second and third tenants can be added at very high incremental margins: the mast is standing, the land is leased and the power system already exists. Adding another customer is not free, but it is wonderfully profitable.

Helios applies this model in Africa and the Middle East, where mobile infrastructure is still far from mature. It owns roughly 15,000 towers, is listed in London and, at 192 pence per share, has a market value of about £2 billion.

One detail caught my attention. In May, the company raised its full-year guidance across the board. Since then, the shares have fallen about 17% from their spring high. Fundamentals up, price down. That gap is what this article is about.

A real estate business disguised as telecom infrastructure

I find Helios easier to understand as a landlord than as a telecom company.

Its tenants are mobile operators. Its properties are towers. Its rents are long-term contracts, typically 10 to 15 years in these markets, non-cancellable, with inflation and power-price escalators. Its growth comes from two sources: building or acquiring more towers, and adding more tenants to the towers it already owns.

This is why the REIT analogy is useful.

Helios is not a REIT, and the contracts are not pure triple-net leases. But economically, it has several REIT-like characteristics: long-term contracted revenue, inflation-linked rent escalators, mission-critical assets, and high visibility. The order book alone is $5.3 billion of signed future revenue, with around 70% of it owed by investment-grade counterparties and more than 70% of EBITDA earned in hard currency.

The difference is that a good tower becomes more profitable as more tenants are added.

A building with one tenant can be risky. A tower with one tenant is just the starting point. Add a second tenant, and the economics improve dramatically. Add a third, and the returns can become excellent.

This is the key to the entire investment case.

Helios’s tenancy ratio is 2.2x, with a company target of 2.5x by 2030. That means the average tower already hosts more than two tenants, but still has room to improve. Each additional tenant does not require building a new tower from scratch. It uses infrastructure that is already in place.

The company’s own investor presentations spell out the operating leverage. A new site earns around 12% ROIC with just its anchor tenant. Add a second tenant and returns jump to roughly 25%. With three or more, they exceed 34%. Same mast, same land, same power.

Slow at first. Then powerful.

Why Africa changes the equation

The growth case is not hard to understand. The harder part is believing the market can ignore it for this long.

Africa has very low fixed-line broadband penetration. In the US and Europe, most internet data travels through fixed-line networks. In many African markets, there is no equivalent fixed-line infrastructure. The mobile network is not a convenience. It is the network.

That means more people, more smartphones, more data usage, more 4G, more 5G, and more mobile broadband all point in the same direction: more demand for towers.

Tower density across Helios’s markets remains far below global averages, and subscriber penetration sits near half of European levels. The market data the company itself cites points to 94 million new mobile connections and a quadrupling of data traffic across its footprint over the next five years, requiring more than 28,000 new points of service. On top of that, roughly 19,500 towers in its markets are still owned by the operators themselves: a ready-made pipeline of future sale-and-leaseback deals. Data traffic across Africa and the Middle East is forecast to grow faster than in any other region for the rest of the decade, and sub-Saharan Africa’s population is growing at several times the pace of the developed world.

I am not buying this for the next quarter. The bet is that Africa’s mobile network buildout still has many years to run.

And Helios is not just promising growth. It is delivering it. In the first quarter of 2026, revenue grew 12%, EBITDA grew 14%, and management raised full-year guidance, including a record 3,000 to 3,500 new tenancies for the year.

What went wrong the first time

The early bulls on this stock were not wrong. They were early.

The stock struggled for years because Helios had too much debt, too much perceived emerging-market risk, and too little visible free cash flow.

Investors looked at the story and saw the growth. But they also saw leverage above 5x EBITDA, rising rates, political risk, currency risk, and heavy capex. That is not a combination the market was willing to reward. From its 2019 IPO at 115p, the stock touched nearly 190p, then collapsed below 70p by late 2023.

The company has moved from “interesting growth asset with a balance sheet problem” to a business that funds itself and returns cash.

Net debt/EBITDA has fallen from a peak of 5.1x at the end of 2022 to 3.5x today, and the company is guiding it toward the bottom of its 2.5x to 3.5x target range.

At 5x leverage, investors worry about survival, refinancing, and rates.

At 3x, they start thinking about buybacks.

Helios has crossed that bridge.

The free cash flow inflection

The most important recent development is free cash flow.

For years, Helios looked optically expensive on traditional free cash flow because it was still investing heavily. But that headline number hid the quality of the underlying tower estate.

Helios itself reports a metric called recurring free cash flow, or RFCF. This is not the same as normal free cash flow. It is closer to “cash generated by the existing estate after leases, maintenance capex, cash taxes and interest, but before discretionary growth capex.”

That distinction matters.

If Helios builds new towers, reported FCF can look modest because the cash is being reinvested. But if the new towers earn attractive returns, that is not a weakness. That is exactly what I want them to do with the cash.

The cash machine is finally working. Helios burned through nearly $80 million as recently as 2023. This year it is guiding for $215 to 230 million of recurring free cash flow, and that guidance was raised in May. The company’s own five-year plan points to more than $1.3 billion of cumulative recurring free cash flow between 2026 and 2030. That is roughly half of today’s entire market capitalisation.

The market used to ask: “When will Helios generate cash?”

Now the question is: “What will Helios do with the cash?”

The answer comes from the company’s own November 2025 Capital Markets Day targets: new sites, dividends and buybacks. EBITDA growth above 9% a year to 2030. A maiden dividend of about $25 million this year, targeted to grow to more than $150 million annually by 2030. And over $250 million of buybacks, which have already started and are already shrinking the share count.

That is the virtuous circle.

Falling leverage enables capital returns. Capital returns improve investor confidence. Investor confidence can reduce the discount rate. A lower discount rate can re-rate the equity. Meanwhile, the underlying business continues to grow.

Why the valuation still looks strange

Helios has already performed well. Over twelve months the shares are up more than 60%. This is no longer the forgotten 2023 opportunity.

But the valuation still looks odd.

At around 192p, the enterprise value is roughly $4.5 billion. That is under 10 times trailing EBITDA, and under 9 times this year’s raised guidance. Extend the company’s own 9%-plus growth target two more years, and it is roughly 7 times 2028. Listed tower peers trade between 13 and 20 times trailing EBITDA. Helios trades below 10 times, while growing faster than any of them.

This is where I struggle with the current price.

This is an infrastructure business with long-term contracts, inflation-linked revenues, structural growth, improving margins, falling leverage, and buybacks. Yet it still trades at a material discount to listed tower peers.

Some discount is fair. Helios operates in more complex markets. Political risk, FX risk and customer concentration are real. It should not trade at the same multiple as American Tower.

But should it trade at half the multiple while growing faster?

That is the question.

More importantly, I do not need a heroic re-rating for the investment to work.

Suppose the multiple never moves. EBITDA compounds at the company’s targeted 9% or better, so at a constant multiple the enterprise value grows at the same pace. Net debt is flat to falling, which means the equity grows faster than the enterprise value. Add a dividend yield above 1% and rising, plus a share count shrinking from buybacks, and you get a low-teens annual return with the multiple going nowhere. A partial closing of the peer discount would be welcome, but it is dessert, not dinner.

There is also a new scarcity angle. In February, MTN, Africa’s largest mobile operator, agreed to take IHS Towers private at a $6.2 billion enterprise value. The deal has not yet closed, but once it does, Helios becomes the last listed pure-play on African towers. Anyone who wants this exposure through public markets will have exactly one option. And in a consolidating sector, the only remaining public company is also the only remaining public target.

My view is that the market is still anchored to the old Helios: high leverage, negative FCF, emerging-market risk, no shareholder returns.

The new Helios is different: lower leverage, positive FCF, accelerating EBITDA, organic growth, and capital returns.

The rerating may have started, but it does not look finished. And the recent pullback has widened the gap again: the shares are down about 17% from the May high, in the same quarter that guidance was raised.

The moat

The moat is not technology. There is nothing magical about a metal tower.

The moat is location, contracts, economics and operational capability.

Once a tower exists in the right location, building another one nearby usually makes little economic sense. The second tower would split the same pool of demand while requiring new land, permitting, power, security and maintenance. The incumbent tower has the advantage because it can add another tenant at high incremental margins.

In African markets, power is also part of the moat. Running towers reliably in difficult environments is not trivial. Backup power, batteries, diesel, solar, logistics and security all matter. Telecom operators would rather focus on customers, spectrum and networks than manage thousands of distributed power sites.

That is why tower outsourcing exists.

And that is why scale matters.

Helios was not built in a vacuum, either. Its founding backers in 2010 included the IFC, the World Bank’s private-sector arm, alongside George Soros’s Quantum fund, Madeleine Albright’s investment firm and RIT Capital Partners. Development finance and sophisticated private capital showed up early, precisely because mobile infrastructure was one of the few African infrastructure categories where the economics were tangible. That history matters. It partly explains why the company has been able to refinance, issue debt, and attract global shareholders despite operating in markets many investors still avoid.

What could go wrong

The risks are real.

First, Helios operates in countries with higher political, regulatory and currency risk. The Democratic Republic of Congo, its largest market, has knocked the stock before. More than 70% of EBITDA in hard currency softens the blow, but the local-currency tail is real, and a cheap multiple is partly justified.

Second, the customer base is concentrated. No single customer exceeds 28% of revenue, but a handful of large operator groups still pay most of the rent. If a major one weakens, delays payment, or reduces capex, Helios’s growth could slow.

Third, capital allocation matters. If management chases M&A too aggressively, the market could again worry about leverage.

Fourth, rates matter. Tower companies are long-duration infrastructure assets. Higher discount rates hurt valuations. That is what crushed this stock in 2022, and it would hurt again.

Fifth, satellites. Starlink is live in a growing number of African markets, and the obvious question is whether low-orbit satellites make towers obsolete. I do not think so. Satellites solve rural coverage, not urban capacity. The cost per gigabyte is not competitive for mass-market mobile data. And operators increasingly use satellite links as backhaul for remote towers, which runs through this infrastructure rather than around it. But it is a technology risk worth watching, and I would rather name it than pretend it does not exist.

Finally, the market may keep applying an emerging-market discount for longer than bulls expect.

This is not a risk-free compounder.

But it may be a misunderstood one.

The thesis in one paragraph

I own Helios because it controls the towers carrying African mobile data in markets where the mobile network is often the only network, under contracts that behave much like high-quality infrastructure leases. The bull case was early for years because leverage was too high and free cash flow was not yet visible. Today, leverage is falling, cash flow has inflected, dividends and buybacks have started, and the company still has years of new sites, new tenants and rising margins ahead of it. The stock has rerated, but at under 9 times this year’s EBITDA it still looks too cheap for a business expected to compound EBITDA at double-digit rates while returning capital to shareholders. And if the multiple never moves, the growth, the dividend and the buyback still do the work.

The old thesis was “one day this could become a great infrastructure compounder.”

The updated thesis is simpler:

That day may have arrived.

Half-year results land on 30 July. The numbers to watch: tenancy additions against the raised guidance, and leverage continuing down toward 3x. I will be watching. You should too.

À bientôt.

Ticker: HTWS (London Stock Exchange). ISIN: GB00BJVQC708. Share price at time of writing: about 192p (delayed quote, 9 July 2026); market cap about £2.0bn / US$2.7bn. Sources: company results, investor presentations and Capital Markets Day materials at heliostowers.com, plus public market data.

Disclosure: I own shares in Helios Towers. This article is for information only and is not investment advice. Emerging-market infrastructure carries significant currency, political and liquidity risk. Do your own research.