According to Peel Hunt, in a through review of the same - Merlin is highlighted - see below for the relevant summary:
FWIW I remain unconvinced of any move, at least at this stage, given the extant PE stake, ongoing capital intensity and the fact that the valuation - while now less elevated - hardly screams cheap. But not something ever to rule out...
"We have been surprised by the de-rating of Merlin. The impact of terrorism on demand in the key UK markets has been material but we expect a steady recovery consistent with improvements in other markets after demand shocks. The Group has an established pipeline of development opportunities, which will increase the geographical diversification of the business and is a clear beneficiary of the trend for increased tourism. Demand for Lego toys softened notably in 2017 after several years of remarkable growth, and this had an effect on retail sales. We expect the new Lego movie to revive interest in the product and for demand for the child-friendly theme parks to remain robust. This is a highly cash-generative global business and we expect it to attract bid interest at the current level."
Deutsche Bank have lowered its forecasts for Merlin today based on consumer spending concerns, bad weather and currency exposure. Projections for both 2018 and 2019 have been cut by 1.7 per cent and 2.3 per cent respectively. The share price has dipped in response.
2 things I`m not over keen on,fairly large debt figure, although understandable with a company determined to expand.
Divi yield mean, again though can be the case with growth orientated companies.
I`ve been unable to find what interest rates they are paying on their loans anyone know pls. ?
I do like that 3 of the directors have a fair bit of skin in the game.
I hope they expand further in to Asia, that remains a growth area. IMO
To price now.
At a 1 year low and the sp below the 10/20/100 day moving averages.
Many TA players would regard that as very negative, I`m somewhat contrarian though and do sometimes like to go long on a 1 year low.
Support level appears to be 352 ( very close to that as at Friday`s close ) then 337.
Resistance levels at 368/383/426/440.
The latter 2 will seem high of course.
Support and Resistance levels are not predictions though.
I`m inexperienced trading this, thought I had done more but just 6 trades so far, 5 wins, 1 loss.
Happy enough with that on something new.
Nothing in now but have re entering to the long side in mind.
I do not think it has viability as a short but some probably think otherwise.
I can see the merit/reasoning behind long term buy.
I'm in agreement with most people tracking this share in that it has great potential. Having recently been over £5 it has not become a bad company overnight. However, I think the senior management has become slightly stale and would benefit from some new blood. Big Little City and Shreks Adventure are recent concepts that appear to be mistakes as is the stake taken in Big Bus Tours. Returning to focus on core strengths by building more accommodation, promoting short breaks and securing an excellent new link-up with the Peppa Pig brand proves Merlin has far from lost its mojo. I'm hopeful that in the not too distant future I'll be posting with a BUY rating but they need to fix some core problems which the current slump has exposed.
MERL has been demoted from the FTSE 100. No real surprise, although it did affect the share price quite a bit, surprisingly. I guess some trackers can only act once it is official - and may still be divesting themselves of stock for a week or two yet.
I hope you managed to SELL, City Ranger. Excellent move if you did, with a re-buy once it is clear where the move will leave the price. At £3.6Bn market cap and automatic re-entry around £5.3Bn its quite a long way back for MERL.
On the other hand, those tracking funds that actually physically hold stock may well also have FTSE 250 trackers (or medium cap UK growth or whatever) so its hard to predict the fallout.
Those of us who haven't sold may as well hold for now. At some point between now and mid December, MERL will become a weak buy...
I must admit, I once again failed to take an index move into account. I should have waited until now for my most recent buy I may go again if the price draws near @342p (5% down on my last buy detailed below).
The lower price is an opportunity from my point of view as I have always had a 5-10 year view of this stock and only bought my first tranche 12 months ago. On the other hand, I consider a full position as 4 tranches and I already hold 5, so it would be something of a risk to take on a sixth with a small dividend and the market headwinds (terrorist activities in the main) that caused the problems are unlikely to disappear anytime soon.
The other side of the coin is that those media companies taking a long term view of the sector must be aware that MERL priced in GB pounds is currently at a bargain price in terms of adding to their entertainment empires, with only Disney likely to encounter any regulatory issues.
Even then it would almost certainly go through as Disney are mostly in the USA in terms of physical attractions and that is the one place where there are other extensive entertainment brands within that home market.
I shall be watching carefully and making a decision on going a 6th tranche between now and Santa rally time which starts around mid December, but I also believe there will be a market correction at some point which will drag MERL down (along with everything else). I wouldn't want to be caught with 6 tranches on hand during that buying opportunity.
Ultimately my aim remains to have a full holding of MERL (4 tranches) at a price with an average as far below @400p as I can make it with trading around the position.
"Are you still in Empiric? (I'm so glad I sold when I did.) "
I am, although I reduced my holding when the price was around @113p and only added a minimal amount at the last IPO. The failure of that IPO to be fully taken up was a big warning, but unfortunately I wasn't aware. One of the penalties for being an amateur and not always having time to keep up to date on all my holdings and prospects.
Obviously I wish I had sold the lot. Hopefully plenty of people dodged the drop after reading my plentiful warnings on the ESP board (and elsewhere) after Mrs May started her infamous rant in India in October 2016. I must admit, the size of the drop has been a big surprise to me, even though I thought a reduction in dividend was probable, at least temporarily. In fact, it was part of the new 2025 plan to reduce from the target of 6% to about 5.5% (I seem to remember), so I'm not sure why it was such a shock.
Anyway, at the current price you can get the original 6% return ... assuming you have confidence in the company going forward .... I wont be rushing in myself when they are talking about 2 years to get back on track.
As I stated, I never did like the '2025' plan, especially flying in the face of government's manifesto pledges to cut back on foreign students and leaving their top-end niche strategy to battle for market share that was worth less per student. It made no sense to me, and seemed to be all about keeping the company growing rather than keeping the returns high.
I believe the Finance Director was the main mover behind that plan, so I'm hanging on to what I still own (about 15% under water with an average of @105p) in the hope that they will go back to their original plan now she is on her way. I'm hoping that the very high board salaries have been cut back also.
Meanwhile, someone may finally knock some sense into the government that if they really want the UK to be a haven for R&D they have to go back on their manifesto pledges against foreign students.
That will probably require Mrs May to step down, but we will see. Or maybe she really believes that the world's 'best and brightest' (by which she means richest) will all just happen to have been born in the UK (less than 1% of world population) in the last 15-20 years... in which case the men in white coats may drag her off instead.
A travesty that a UK government should actively seek to destroy one last sector in which the UK was arguably a world leader, has a global reputation for quality and the natural advantage of speaking the global language of business and science that all top students must become fluent in.
Unfortunately, the media has been persuaded (and I use the word advisedly) to concentrate on the salaries of University Chancellors whenever one is on TV or the radio trying to point out the damage that is being done. A classic 'flanker' if ever I saw one. Why the BBC are swallowing it, I don't know.
Merlin are being tipped to fall out of the FTSE 100 index as part of the quarterly index review. Confirmation one way or the other is expected after market close today (changes would be effective from December 18th). If they do exit, this would put further short term pressure on the share price as tracker funds amongst others sell down their holdings.
The Times Article won't add to your knowledge, Eadwig, but it seems to have had a negative effect on the market's view of Merlin & consequently the share price.
Any price movement in between relevant news is an opportunity for folk like you who make an assessment on the true value of the shares.
I haven't topped up yet - been too busy taking advantage of other oversold shares (Ultra, Dignity) & trying to work out any opportunities thrown up by the budget (who will be getting the work from the Electric Vehicle Charging network fund?) - but if it continues to drop I may just have to.
Are you still in Empiric? (I'm so glad I sold when I did.)
@361p, which is a function of my last BUY @378p (approx 5% down on that price) and my ambition to get my holding average down to @400p on 4 tranches for the long term. Average is now @399p, but on 5 tranches, unfortunately.
Haven't read the Times article. Will try to if I can find the time, but I doubt they'll be adding to my knowledge specifically. Always good to know what such media is saying though, it all feeds into the general sentiment.
Chart is looking pretty dismal, innit? Buying now at what I was guessing might be the new low support is a risky one, I'm the first to admit it.
I've still got more to come here yet, as those who know my posts might have guessed!
I particularly want to tie-in the plans for technological expansion plans and developments, and I need to go back over your post to see if there is anything I can't answer.
There's also the latest developments and latest forward guidance to analyse. I think I'll leave the numbers to you, but I have always thought the P/E multiple generally too high (it is what my first post was about on this board).
The actual growth has never lived up to the multiple the market has assigned, for one reason or another, and since I have been involved the growth achieved has really been very average.
However, the plans are ambitious, they are focused abroad for maximum diversification as soon as possible (although I'm sure the UK as a major tourist economy will remain a large part of the company offering, and rightly so). I don't see any immediate future where companies listed in London but earning foreign currency aren't going to have a premium attached.
I'm sure MERL will continue to extend the number of brands offered and also destination hotels from which multiple MERL attractions can be accessed, but the strength of the existing brands will get more and more coverage and so far they have shown great caution and wisdom when adding brands, I think.
I haven't seen it stated, but the age that attractions appeal to is being widened also and the Peppa Pig brand shores up the pre-school level nicely while Shrek appeals to a slightly older audience. (I wonder why unique licenses never seem to extend to China).
I'm unsure about the whole concept of Little Big City and want to look into that further before expounding on it. I might even sneak a visit if I can get over to Berlin (drivable from here). I love models myself (ever since seeing the railway layout at Alton Towers when about 11, funnily enough) but I'm not sure they have a lot of pull.
The SeaLife attractions look set to expand to just about everywhere there is thought to be a market, and there are new brands in Australia (Tree Top Tours, WildLife, skiiing resorts and others, all of which which can very easily be expanded across the world if thought suitable. Management will be key in the decisions here, of course, but so far they seem to have done well, if over-cautious in their presentations.
There are some competitors such as 'Six Flags', I think it is, in the USA, but they only run theme parks - in fact pleasure parks really (rides only pretty much) and one or two others. Brands are all important, and Six Flags is unknown outside USA.
I'd love to see MERL get their hands on Warner Bros and the Harry Potter franchise and theme park(s) at some future point, but that is just fantasy right now.
Held up at the moment by yet another illness, and the constant antibiotics are slowly ploughing me under. I shall be back ASAP.
PS. I have upped my next BUY order (5th tranche) up from @358p to @364p as part of my efforts to trade my average down to below @400p
"If I didn't think I had answers to your questions then I would be re-examining my position immediately... If you haven't done so, I do urge you to go back over my posts from the last year on this board... Like you I've never really understood or agreed with the high P/E but ultimately that was the price I had to pay to be in, I decided."
Hi Eadwig - a belated thanks indeed for your considered thoughts in defence of the MERL thesis (and hope you are back on the mend now?)
And again - I have been through pretty much all your previous pertinent posts on the longer term case, and I really don't find too much to challenge in any of its multi-faceted aspects... well thought out and argued, and imbued with your considerable investment experience and expertise, as I would expect. If, for me, MERL is not quite a perfect fit for some of them, it still doesn't negate their relevance to the debate - and nothing is ever a perfect fit for any thesis!
And you are right to say "my questions" - as I said before, it is questions I have, rather than answers. Ultimately, for me, any such long term case is about squaring the story with the price you have to pay for it, and it is the latter I am wrestling with most, not the former! FWIW I had a very good seat to observe the IPO and, for a while, its subsequent experience as a quoted company, and was always both interested and intrigued... I wasn't allowed to buy in back then, which I might well have done otherwise, hence my renewed attention now that I can and the SP pull-back has thrown up at least a potentially "unique-ish" opportunity.
For any situation, if I can't make the valuation work for me, as well as the story, I won't buy in... I have missed out on a few good 'uns as a result, but equally, dodged a few bullets. Swings and roundabouts, overall...
When I said "unique" stock, I was thinking partly as a UK stock, but also that while there are a few international comparators (Disney of course, also SeaWorld? and one or two more in both US and Japan, as I recall, though would have to dig around to refresh my memory), none were that close a fit to MERL's profile. It just makes pricing the story that bit more difficult...
And I do have a caveat over hotels expansion... yes, they earn higher margins (they have to), but typically lower ROCE due to capital intensity, and higher cyclicality, with high operational gearing. And (rightly or wrongly!) I was always more intrigued by the opportunity in the Midway segment, with shorter "dwell" times and where it's more about exploiting existing footfall rather than packaging longer term duration with accommodation supply. But yes, I see the sense in some level of hotel capacity... as long as they don't over-build in the wrong places, at the wrong time...
"... don't accept this argument and see no evidence to back it up... major internet/media players are driven by idealism as much as ROCE and future growth is all about Intellectual Property, Access and CONTENT over which they control access to or have unique ownership of."
On this point, a fair cop, I was largely thinking out loud... and ultimately, whatever the rationale, I don't doubt there's a few who could certainly buy MERL for almost any price without blinking, today, tomorrow or whenever. As for who will be the big "internet/media" players 10-20 years from now, I am less sure - could be a whole new crop, I suspect at least some of the current ones will not last the pace... though there will be doubtless others to take their place (as I can hear you say yourself!)
So... I commend your case, I'm just not sure what it's worth. More than a "market average" rating, I agree... but maybe (probably) less than the 25x P/E or so we have seen not so long ago. Somewhere in between... which is where we are now! It sometimes helps to apply the binary consideration in such cases, everything's either a Buy or a Sell... easy enough answer for me in that case, down here, I would Buy it
Bill, "the capital intensity may put off your internet/media players who are much more at home with asset-light, capital-light, high ROCE operations."
I simply don't accept this argument and see no evidence to back it up. Many of the major internet/media players are driven by idealism as much as ROCE and future growth is all about Intellectual Property, Access and CONTENT over which they control access to or have unique ownership of.
MERL are all about the development of I.P. (that very much includes media franchises, brands and merchandising) and pushing forward into virtual reality experiences and ever-increasing integration of technologies. Lego was rated 'the most powerful global brand' in Feb 2017, making it a critical linkage. (I've never been quite sure just how solid that linkage with MERL is - could Lego withdraw from the deal, for example?)
MERL's other brands are not in the same league, although they are growing in strength and value.
'Asset light, capital light?'
The Google maps project.
Cross-pacific fibre cables have been or are being being laid by Google, FB, MSFT.
Autonomous transport, drone delivery, low-level 'satellite' internet provision across the whole of the third world.
The complete depository of Chinese literature in one library (written pictorially, remember), online education up to and including degree level (Tencent Holdings)
$19Bn for Whatsapp by FB
Ongoing R & D and applications of artificial intelligence and machine learning.
Global credit cards and mobile payment systems.
The development of new production studios and TV shows, bids to show/stream live professional sports in the hundreds of millions which will soon be into billions as contracts come up for renewal.
Feature film projects and studio ownership.
Amazon not even attempting to make a profit for the first couple of decades.
The list of heavy capital projects with no guaranteed return whatsoever is just about literally endless.
Apple alone have as much cash on hand as most nation states. Over a quarter of a trillion USD in cash at the last count, I think it was.
Money is NOT going to be any kind of impediment to these companies when acquiring rights and assets that will help them secure content and customer interest.
Hardboy, "BUT where do the expanding middle classes in emerging countries take their international holidays which they can now afford?"
Exactly, Hardboy. As I placed in an earlier post (which I assume you have now seen, Bill), WIZZ Air, the fastest growing airline in Eastern Europe, switched one of its new, larger capacity planes onto the Warsaw - Copenhagen flight specifically to cope with the demand for Legoland:
Eadwig 30-6-17 "A minor point of interest - on a flight from Poland the other day, I read in Wizz Air's magazine they are upgrading one of their routes from Warsaw to Denmark by putting a larger plane on the route (230 available seats instead of 180 per trip) due to the demand they were seeing for family visits to Legoland. "
Now, you don't take plane trips for day visits as a rule, not with the family in tow. This is why the expansion of the hotel chain is a good idea. Why not put together an easy family package based on your own hotel, especially if it raises the profit margins and your take from said family - and making it much easier for them to book a package into the bargain?
I bought a pack of cornflakes in Poland last week - the back of the packaging is plastered with MERL brands and package offers with inclusive tickets to various destinations, including London. I was a little surprised, I have to say, but then I don't normally buy cornflakes (neither do Poles, come to that, but Poles and Eastern Europeans generally are mad for theme parks, far more so than us Brits who might see them as a bit plastic and perhaps only grudgingly take the kids along as a treat after much badgering).
Note the large theme parks that are not part of specific brands like Lego or Sealife that have opened in Central/Eastern Europe.
Emerging Markets. Yes, its early days (that's the point of getting in now and swallowing that high P/E, though always with the intent of trading the holding price down). MERL does have Mdme Tussauds, Sealife and Legoland attractions already up and running in China, Malaysia, Turkey as well as Singapore and Hong Kong and Dubai.
Expansion continues apace in Australasia and USA. Not emerging markets, but both have very fast population growth, high standards of living and deal in currencies which are not GBP.
They are also now in Tokyo and South Korea. Not fast growing markets population-wise, but large internal markets all the same. Families will travel from all over Japan to visit Tokyo and add MERL attractions to their list of things to see, I assume S. Korea is much the same.
Much more to come when I get time ... soon I hope.
I don't really have the time or energy (illness) to respond fully. I do appreciate a rigorous examination of my thesis though and if some of my answers seem a little terse or off-hand, it is purely lack of time and not in anyway meant to put you off posting more of the same. Please do.
If I didn't think I had answers to your questions then I would be re-examining my position immediately with a view to imminent exit if I couldn't regain confidence in my thesis (which is a little wild for many people to go along with, when it goes so far as it does with the global internet companies etc ... however, since I first came up with it in 1985, I haven't been very far off track as yet, and I have made a ton of money based on it).
That's not to say I haven't got a major thesis badly wrong in the past when I got carried away with the potential for First Group and natural gas conversions. The trouble was, FGP weren't really interested except where parents were paying to subsidize their school bus conversions in the richer parts of N. America. FGP never bought into *my* thesis. An expensive lesson, and NOT a mistake I am re-making with MERL, whose expansion plans are there for all to see and not what i would do with the company if I were in charge.
Just a reminder of MERL's plans and current position: "Merlin Entertainments is the largest European entertainments company operating in Europe. Merlin runs 123 attractions in 24 countries across four continents. Our aim is to deliver unique, memorable and rewarding experiences to millions of visitors across our growing estate. We believe that we achieve this objective largely thanks to the commitment and passion of our team and the strength of our brands, which will never fail to be distinctive, challenging and innovative."
I think you know I'm not one to 'fall in love' with a stock and do try to look at all sides. If you haven't done so, I do urge you to go back over my posts from the last year on this board.
You can skim many that are simply tactical to do with:
My trading around a position,
The stock price movement,
The expanding foreign earnings
The initial boost from a falling pound
MERL's over value for anyone NOT looking so far ahead as me. Like you I've never really understood or agreed with the high P/E but ultimately that was the price I had to pay to be in, I decided.
However, there are posts that do expand on my MERL growth thesis which I think you may not have read judging from your post, and you should read in detail.
By the way, I wouldn't say MERL is completely unique. MERL and Walt Disney (DIS.NYSE) have some business parallels and are going to increasingly take on aspects of each other, in my view. They are the two leading global players in 'Entertainments'.
Last of the pre-amble: I'm not 100% up-to-date with all MERL's doings, I have to admit. I shall add here as and when I have found the time to do the required catching up, some of which is very pertinent to your questions and observations, especially the VR developments I discuss in one of the previous posts but which is an extremely fast moving area.
"And is Merlin actually exposed to the parts of the world which are really growing strongly, and (in particular) the "expanding middle class" story - such as China and India, etc? Merlin mostly operates in developed rather than emerging markets, "
Point well made, BUT where do the expanding middle classes in emerging countries take their international holidays which they can now afford?
"As I've stated consistently this is a conviction stock for me and a long term, ten year play on population growth, emerging markets, strong brands and ultimately the merging of all such companies into the dozen or so internet/media global giants... Of course, I could be wrong... Or, more likely, I may have picked the wrong vehicle."
Yes, Eadwig, and I have more recently spent time trawling through the discussion history on here, and I commend and applaud the detail with which you have expounded your conviction, over time, and I would never accuse you of not putting your money where your mouth is!
And I do find myself nodding at pretty much all the elements of your long-term investment case - but with some reservations.
Are not most stocks a play on population growth, somewhere along the line? And is Merlin actually exposed to the parts of the world which are really growing strongly, and (in particular) the "expanding middle class" story - such as China and India, etc? Merlin mostly operates in developed rather than emerging markets, particularly Western ones where middle classes are actually under relative pressure... though I appreciate MERL does have some expansion plans (though not much more, as yet?) in the relevant emerging areas?
And I would never rule out a takeover... though there is still (I think) a big PE stake, and the capital intensity may put off your internet/media players who are much more at home with asset-light, capital-light, high ROCE operations. At least, the valuation is less of an obstacle now than it used to be (expensive stocks are much less likely to be taken over).
As I've always said, I can see the story, more or less, but I struggle with the valuation... and by this I don't mean it is (or at least was) obviously expensive, I just struggle to value the story. Is it worth 25x P/E, or more like the current 18x... or maybe 15x (which is more than you now pay for WTB, a not entirely dissimilar investment-led branded growth story)?
I genuinely don't know... it's a relatively unique stock (which some would see as a positive, though more of a double-edged sword IMHO), and it's only been on the market a short time (relatively) and so market history is less of a guide... it's always been on a high P/E but maybe the market is now coming round to the view that something lower is more appropriate - you detailed yourself its accident-prone recent history, and this is not a tag that the has ever market warmed to (no matter that only some of it is their fault).
You have no other valuation "support" - not much of a divi yield, and little FCF - for understandable reasons, given the investment-led-growth profile... but I worry that FCF may never be that great, with a relatively high level of ongoing investment possibly required just to maintain their market position, attractions needing to be constantly updated and refreshed to avoid going stale and falling out of fickle customer favour.
But these are questions at this stage, rather than answers... it is perfectly possible that the market is overly focused on near-term exceptional blips - it certainly is elsewhere - and therefore that the slump to sub-370p will prove a multi-year opportunity to get on board this "unique" (for better or worse) story.
As I predicted, we're seeing the kind of analyst price target cuts I'd hoped to see before the summer to help me trade my position.
Instead we got the rather bizarre list of price target upgrades which had me selling instead of buying - pretty much all of which have now been cut back (see below. Nice to see a director doubling his position, and showing some faith, by the way).
It all helps when building a position for the long term. I'm cautious to give a strong buy as we've seen how sensitive the market is to any kind of negativity, and the MERL management always hedge on the cautious side, not least because they seem to have access to some of the best data going in terms of predicting economic impacts of terrorist attacks within Europe.
I've also always held back from being fully invested because of the large correction that is coming somewhere down the road. Next week? In two years? Who knows? It will come though and I still want to add at that point too.
So, a weak buy from me. The risks are plain for everyone to see from the recent market re-assessment, starkly outlined on the chart below. D.Y.O.R.
I'm hoping the historic volatility that has enabled the stock to be so tradeable will continue from what is a new low starting point. Personally I remain confident that a holding average of @400p will pay handsome returns for anyone with a five to ten year investment horizon.
I'm now aiming for an average lower than @400p if I can achieve it, given this opportunity. I'm currently averaging @409p since first entering in Nov 2016 @440p approx - all my buys and sells and my thesis on the company are on the board for anyone who cares to read them - Bill ;-).
25th October Short positions declared 0% (zero percent)
24th October 2017
Ken Hydon, Non Executive Director, bought 30,000 shares in the company on the 23rd October 2017 at a price of 375.70p. The Director now holds 61,920 shares
23rd October 2017
Deutsche Bank today reaffirms its buy investment rating and cut its price target to 515p (from 600p).
20th October 2017
Goldman Sachs today reaffirms its neutral investment rating and cut its price target to 400p (from 470p).
18th October 2017
Credit Suisse today upgrades its investment rating to outperform (from neutral) and cut its price target to 440p (from 500p).
Barclays Capital today reaffirms its overweight investment rating and set its price target at 480p
Shore Capital today upgrades its investment rating to buy (from hold).
Morgan Stanley today reaffirms its overweight investment rating and cut its price target to 470p (from 580p).
As I've stated consistently this is a conviction stock for me and a long term, ten year play on population growth, emerging markets, strong brands and ultimately the merging of all such companies into the dozen or so internet/media global giants that will dominate business globally, in my opinion.
Of course, I could be wrong and the internet, branded family entertainment and indeed families, may go out of fashion. Or, more likely, I may have picked the wrong vehicle.
If you can see a better one, please do point it out.
I remain undecided... forward P/E now around 18x. What price for a "growth stock" which isn't actually growing much... and while the future growth potential is there, it seems likely to come at the cost of ongoing high capital intensity - at what point are you ever going to get any decent FCF and dividend generation out of this?
And if you want a hotel stock, you can buy WTB at 15x forward P/E...
Probably slightly cheap IMHO, but maybe not by much - I am sure some would pay over 400p for this story, but not sure I would - at least, not yet.
For completeness, see below for my considered thoughts back in August with the SP around 465p - as posted on another board:
And the bottom line is... underwhelming for me. Obviously cheaper than it was when soaring up through 500p, but probably no better than 'fair value', with nothing to get too excited about in any of the key elements, as summarised:
Forward P/E 21.2x (act 23.7x)... has always traded at a market premium, but not always up at this level. Reported growth continues fine, but underlying growth before FX has been pretty flat for a year or two, and this seems to be continuing... a concern as the FX kicker is now "going ex", is unlikely to be repeated and could well reverse (though probably not quickly!)
FCF yield modest at 2.8% latest FY (1.4% prev)... you could argue that "steady-state" FCF is quite a bit higher, before "growth" investment, but equally, I suspect that they will always have to sustain high renewal spend, as without a constant cycle of new features and attractions their sites will quickly become stale and moribund.
Divi yield well below 2% still, so no meaningful story here... it reflects the ongoing capital intensity, I would say, which (as above) might well be a much more permanent feature than some bulls suppose?
A takeover is a long-term possibility, of course... but much less likely for foreseeable IMHO, there is still a 30% PE stake I think, and even absent this, EV/EBITDA of 13-14x last 2 yrs hardly screams opportunity to any prospective trade buyer.
I get the medium term story, largely to do with rolling-out more sites (particularly the "midway" segment), so profitability should remain well under-pinned. But as before, it's a business where you have to continually innovate - and spend cash - just to stand still, and you have to ask what price you are prepared to pay for this story, particularly with no real dividend or FCF yield support?
Probably 20x P/E max for me... there are definitely even more elevated ratings elsewhere in this market - but I wouldn't be chasing those either, on anything more than short-term view!
"... P/E looks far more sensible at the levels you mention, I have to say. If you look back at my first post I always questioned the multiple the market was giving the company..."
Eadwig - without wishing to pick you up on it unduly, I find the above somewhat strange given your regular reiterations of bullishness on the stock. Surely, the market "multiple" is an integral - and pretty important - part of the investment case? Of any investment case?
And it is hard to square with a number of previous comments, including the following from 15th Sept, with the SP around the 450p mark:
"... Still a STRONG BUY - I hope anyone who took note of my post earlier in the week has filled their boots..."
I do get the longer term structural story... but whenever I have looked at it in recent times, I have always concluded this to be pretty fairly priced in.
But FWIW, I definitely feel it's getting interesting now, after the sharp correction - though I need to do more work on it. And I am not sure increasing the number of hotel rooms is the way to go here, it merely increases the cyclicality rather than exploits the structural demographic opportunity, etc... but as I say, something to ponder further.
Hardboy, "In fact they are not predicting a flat year in comparison with 2016, they are forecasting like for like sales will be flat (which are completely unaffected by overhead costs.)"
Thanks for the correction. Its an easy thing to overlook when skim-reading, which is all I have time for at the moment
P/E looks far more sensible at the levels you mention, I have to say. If you look back at my first post I always questioned the multiple the market was giving the company.
Brokers. Yes. Regualr readers may remember, my buying strategy was based on brokers pulling down the price throughout the summer, but they did the opposite. Now I'm fully loaded up with 4 tranches you can bet your life they'll start singing a different tune.
However, from a 10 year perspective (which is very uncommon for me to have), I think the business is going in the right direction, with most major problems beyond its control (apart from the safety issue at Alton, arguably).
If I have a complaint, I'd like to see a bit more targeting of cost efficiencies, but its probably too much to ask in these days of individual security guards conducting searches and the like. They certainly do always appear to be on top of the issue, eg. the redundancies at Alton when it failed to pick back up as quickly as they were expecting.
Story. Last time I was dragged into Mdme Tussauds (2012) we went on the ghost train (or whatever the ride is). Big notices about no taking pictures etc etc. In the car/wagon in front of us were four apparent Muslim women, dressed in full coverings, including face masks.
As soon as were through the doors of the 'station' and into the ride, huge, expensive cameras with every device attached you can think of were brought out from under their garb and they were clicking away like mad - as though it were a competition to see who could get the most photos rather than an experience they were supposed to be taking-in and enjoying.
I seriously thought about reporting them to security in case they were surveillance for a terrorist outfit planning to hit a major attraction - and none more major than Mdme Tussauds. It was about a month before the Olympics.
They could equally well have been a load of students preparing something for freshers week or something. At least one of the bare arms I saw operating the camera looked decidedly male, and all four looked to handle the cameras like professionals.
A pretty surreal site to see, I have to say. I never reported it, assuming there would be internal CCTV cameras picking them up anyway.
Thanks for posting that Eadwig. Some good points in it.
But I'll correct this bit.
"massive hike in business rates and min. living wage hikes. Considering a flat year compared to last in the light of that isn't so bad,"
In fact they are not predicting a flat year in comparison with 2016, they are forecasting like for like sales will be flat (which are completely unaffected by overhead costs.) Their forecast for EBITDA was £470-£480m which is 4.5% up on last year. His point in relation to that is fair,
Anyway, assuming the EBIDA rise is reflected in EPS, that would give an EPS around 22, and a current PE of 16.8, suggesting the current level is about right.
I see a couple of brokers have revised their target prices to 480 & 440, so they think there is some good upside from here; and that still values the business as having some growth in it.
Glad I topped up yesterday, but think this is a wait and see share for me until the next up date, which should include Halloween & maybe Christmas Bookings.
"LSE:MERL:Merlin Entertainments'Â share price enacted a bit of a snow job on traders, using two differing feints to lure investors.Firstly, on 5 October, the share price broke the obvious downtrend since June 2017. For many people this is ..."
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