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Terror threat costs Merlin

The leisure park operator still faces a challenging year in light of the persistent terror threat
March 6, 2017

The figures in Merlin Entertainments' (MERL) results table were flattered in two ways: a week's worth of extra trading and foreign-exchange rates. Ignore these two factors and revenue only grew 3.6 per cent and operating profit dropped 6.2 per cent. Management put the profit squeeze down to "challenging trading in a number of key markets", which were not fully offset by attempts to cut costs throughout the year.

IC TIP: Hold at 480p

Breaking the group down into respective divisions, the challenges were clearest at the 'Midway' attractions - which include Sealife and Madame Tussauds - where like-for-like sales fell 0.2 per cent. This was down to heightened security fears, most strongly felt in London, and travel restrictions between Hong Kong and China. A high level of fixed costs also resulted in a margin contraction of 330 basis points to 36.1 per cent, leaving operating profit down 10 per cent.

As for the Resort Theme Parks Operating Group (RTP), which has had to contend with the fallout from the Alton Towers' 'Smiler' ride crash, we can say that recovery is under way. Like-for-like revenue rose 4.3 per cent, while operating profit surged 61.3 per cent as a result of good sales growth and tight cost control.

Prior to these results, analysts at Peel Hunt expected EPS of 21.8p in FY2017, moving to 25.6p in FY2018.

MERLIN ENTERTAINMENTS (MERL)
ORD PRICE:479.6pMARKET VALUE:£4.87bn
TOUCH:479.4-479.6p12-MONTH HIGH:508pLOW: 335p
DIVIDEND YIELD:1.5%PE RATIO:23
NET ASSET VALUE:140p*NET DEBT:72%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2012**1.07988.0nil
20131.1917215.1nil
20141.2522616.06.2
20151.2823716.86.5
2016†1.4627720.87.1
% change+14+17+24+9

Ex-div: 11 May

Payment: 19 Jun

*Includes intangible assets of £1.02bn, or 100p a share **Pre-IPO figures †53-week period